Cash flow is critical to the success of a small business. Even more than profitability, cash flow is important because it allows companies to buy inventory, keep the lights on, and their employees paid. While small businesses continue to try and recover from the pandemic, focusing on cash flow can help a small business survive and thrive.
Collect payments quickly
One of the easiest ways to improve cash flow is to incentivize customers to pay as soon as possible by offering discounts. You may want to test what amount is worth sacrificing to ensure the quickest turnaround of your invoice payments. Another technique for collecting payments quickly is to require deposits from your customers in advance of delivery of the product. This can help collect at least part of the payment upfront versus waiting until later in the month.
Accept electronic payments
Thanks to advancements in technology, there are multiple ways for your customers to complete quick and efficient transactions with your business. One example is electronic billing, which allows for you to customize invoices and set up automatic payment reminders for customers. Electronic banking services such as Zelle for small business makes it easy for payments to be sent and received quickly. In addition to helping your business get paid fast, you can use Zelle to conveniently pay other businesses or individuals.
Plan ahead for cash flow shortages
It’s important to plan for the unexpected. Typically cash flow will vary, and unexpected expenses will occur even for established businesses. Keeping a rainy-day fund with three to six months of basic operating expenses in a reserve can prepare you for slow periods and emergencies. Another option is to use a business credit card or business line of credit to pay for everyday expenses and help bridge gaps in cash flow. Be sure to monitor your expenses with online banking and monthly statements.
Reaching your highest potential as a business owner and being able to serve your customers effectively depends on maintaining positive cash flow. Following the tips above may help keep your business financially strong and position your company for success.
— Brandon Meredith is the Wells Fargo small business leader in Boise, Idaho.