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Ways to improve cash flow

Signs of growing revenue and profits are ones that indicate your business is succeeding.

This does not reduce the importance of continually making small changes that will improve profitability of the business.

These are some changes you can make to improve the cash flow of your business.

Send invoices straight away:

The faster you send invoices, the faster your client is likely to transfer funds.

Encourage payment to invoices:

You can do this by sending reminders to clients, providing incentives for paying invoices on time, or charging penalties for paying them late.

Lease rather than buying:

While leasing might be more expensive than buying in the long term, it does help cut down on day-to-day expenses and immediate cash flow. Lease payments also fall under business expenses, so you might receive some concession during tax time.

Customer credit checks:

A customer might be hesitant to pay in cash, if this is the case, conducting a credit check might be useful. Poor credit is most likely indicative that you will not receive your payments on time – in the long term this will hurt cash flow, and it is probably better to not pursue business with the client.

Utilise electronic payments:

Electronic payments make it easier to pay when it is convenient for you, so you can make payments late, as they will go through immediately.

Develop relationships with suppliers:

If you find that you are regularly conducting business with a particular supplier or service provider, aim to maintain this relationship in the long run. This will improve the chances of receiving discounts in exchange for regular business or early payments.

Pay attention to your inventory and/or work in progress:

There will be some items in your inventory that are sold less frequently than others. Checking your inventory usage every so often will help you
make changes to how much of a product you stock. For certain products, rather than ordering more, it may be better to sell them off.

Equally managing your work in progress is critical. WIP will accumulate on a job through labour cost and needs constant review to the job budget and
billing as soon as possible on job completion or progressively if that is possible.

Increase pricing:

Don’t be afraid to experiment with price changes every now and then, this will help you understand the value of your product and
provide more cash flow.

While the above strategies are ones you can implement to improve cash flow, you should also be focussing on cash outflow and reduce unnecessary expenses.

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Mark Holton