For small businesses, cash flow management can be challenging. Nudging the customers for payment can be quite frustrating and time-consuming. Are you tired of chasing customers for payment? Don't worry; we are here to help. In this article, we are about to see some tricks and tips on managing the cash flow. No matter which business you are in, these tips will surely help you, so let's get started.
1. Send the invoice immediately
There is one golden rule in business: the quicker you send the invoice, the faster you get your payment. The client or the customer will not pay you until and unless you send them the invoice, and if you delay sending the invoice, you are restraining the chances of quick payment. Make sure your invoice is simple and easy to understand for clients; you can use some software to make it look more understandable.
2. Make sure customers pay the invoice on time.
One of the best ways to increase the cash flow is to make sure that the customer pays on time, now you might be wondering how it is possible? How can you do that? There are a lot of tactics to increase the chances of getting paid faster. Let's see. Here are some tips
3. A gentle reminder and follow-ups
If the clients have not made the payment on the due date, don't forget to send a gentle reminder. You can send reminders through email, SMS, WhatsApp or by any other means. If the delay is more than a month, you should directly call the customers. Accounting programs that automatically send a reminder to late payment clients is also a good option and can help you in cash flow management.
4. Give incentives
Incentives are lucrative; consider incorporating them into your strategies of improving the cash flow. You can do that by providing an incentive to the client who pays before the due date. You can also give some discount to the people who make their payment in the first week itself. Giving incentives is a win-win situation for you and your customers; they get an amazing deal, and you get your payments fast.
5. Penalty for late payment
Another way to increase the cash flow is by having a strong payment policy. Ensure you have a policy where customers are made to pay penalties whenever they exceed the due date. Include a proper date and timing in the policy to avoid any confusion. A strong, well-written payments policy can shape your image as a profession in the market and will help you to stand out. Ensure you are transparent to your clients about the policy and know that they will be charged extra if they make the payment late. The best way is to do some research before Coming up with the payment policy.
6. Invoice factoring
Although the strategies discussed till now are very practical and helpful, still, in some cases, if it doesn't work, you can consider the option of invoice factoring. It is nothing but a process in which you sell your invoice and get immediate cash; in return, you have to give the company a small cut of the money. With invoice factoring, you don't have to chase your customers, yet you can manage the cash flow very well.
If your cash flow is not satisfactory, you can even increase the price of your good and services, but before that, consider some points like:
- How much does your competitor charge?
- How much workforce do your inventory and services require?
- Does your product justify the price you charge?
- Are your products cheap?
- How is your brand image in the market? If you increase the price, will it affect sales?
Price your product in a way that strikes a balance between value for money as well as compensates the hard work required to create the product
7. Expand sales market
If you want to increase your cash flow, you have to think innovatively; you can brainstorm to create a new source of income. Yes, that is not quite easy! but remember, you are handling a business, and you should be ready to take risk
8. Adding new services or products to business
Think about the services or product you are offering; can you add some more to it which will complement your existing business as well? Sounds impractical? Let's see how this is possible.
Suppose you are a brand selling skincare products like moisturisers, serums, sunscreen, etc. especially customised for women. In this case, you can start your haircare range because women equally care for their hair. If you start a haircare range, your customer will get the haircare and skincare under one roof, which will be very convenient for them and complement your existing product. In addition, thinking out of the box can create some extra income improving your cash flow.
9. New Marketing Strategy
If you are in a business, you very well understand the importance of marketing. A good marketing strategy can improve your sales, in turn improving the cash flow. Design customer-centric marketing activity which will help the customer to connect with your brand emotionally. This will help to retain customers, and the business will be rewarded with some good loyal customers.
Loyal customers are assets. You can also use digital marketing strategies like search engine optimisation, social media marketing, and pay-per-click marketing to get some new customers.
10. Encourage your customers to buy more
Increase in sale means more cash flow, so you can encourage you the existing customer to buy more by giving some lucrative offers or by recommending some additional products, e.g., if a customer is buying derma roller for micro-needling suggest them alcohol which is used to sanitise the derma roller before every use, or give some discount to them when they buy both. You can even encourage bundle buying by giving some exciting offers like buy four get one free this will create an urge among customers to buy more.
11. Take care of your loyal customers.
Loyal customers are the backbone of the company. It is very important to take care of them. They not only increase your sales but can help to grow your business. Start a referral program in which customers will get some discount if they refer someone. You can give rewards to your loyal customers; offering a gift when they reach a certain milestone is another great thing to start.
12. Re-evaluate your operating expenses
You can improve your cash flow greatly by managing and reducing the cash going out of business.
13. Cut down unnecessary expenses
Cutting down unnecessary expenses can be a little confusing as every expense seems necessary to ask yourself.
- Is this expense extremely necessary?
- Is there any cheaper alternative to this necessary expense?
14. Streamline business processes
Have we heard this right? It is indeed true if you are in business. Analyse all the current processes required for making the product and look at how you can reduce the time required for this process. If less time is required, you probably have to pay less to the workforce, which can help to minimise the cost.
15. More efficient purchase types of equipment
Efficient equipment can reduce production time and optimize the use of resources. Quality equipment requires less maintenance as it reduces the cost of wear and tear of the machine.
Check out more information on the OkCredit, your digital bahi khata management app, to get a deeper insight.
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4) What are the keys to success when operating a small scale business?
5) OkCredit: All you need to know about OkCredit & how it works.
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Q. How much cash flow should a small business ideally have?
Ans. Ideally, it does depend on the business. However, a small business must have the cash flow to manage their 3-6 month operating expenses easily.
Q. What is essential to manage the cash flow of a business?
Ans. It is very important to keep track of all the cash coming in and going out of the business. This helps the business to protect the future and solve the problem related to cash flow.
Q. Why is too much cash flow bad for a business?
Ans. Too much cash flow can cause many problems, such as increasing cost of capital, low return on assets. In addition, it can make small businesses overconfident, leading to mismanagement.