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4 Rules to Maintain a Healthy Cash Flow for Your Small Business


Cash flow management can often feel like a bit of a balancing act for small business owners - and a precarious one at that. Cash is the fuel that allows your business to keep on running, and without it you’ll soon come to a standstill. However, many business owners neglect cash flow and hope that it will sort itself out (spoiler alert: it won’t.)


With that being said, cash flow management doesn’t have to take over your whole life. By adhering to the following four simple rules, you can ensure that your business continues moving forward at full speed.


1) Get Customers to Pay You Quickly

In order to maintain a healthy cash flow, you need money flowing into your business faster than it leaves. One way to achieve this is to encourage your customers to pay you as promptly as possible.


The easiest way to do this is to stay on top of your invoices. Use invoicing or accounting software to send them out on time and ensure that all of the information is correct. You must keep a close eye on which deadlines are approaching and which payments are overdue.


Don’t be overly generous with your payment terms, either. Gone are the days of communicating via snail mail and waiting for cheques to clear, so why are you still allowing your customers to wait so long before paying you?


Finally, consider introducing early payment rewards and late fees. For example, you could offer a 2% discount to customers who pay within a certain early window, and a charge for those who pay late. Be sure to communicate these terms very clearly from the get-go to avoid any misunderstanding.


2) Don’t Pay Too Fast

It’s admirable to want to stay on top of your finances and pay what you owe as soon as possible, but this is not always the best approach in terms of cash flow management.


Whilst you should always meet your payment deadlines, don’t be too hasty. If a supplier gives you 30 days to pay, doing so on day 28 rather than day 2 gives you more time for cash to flow into your bank account before your balance diminishes again. This reduces the likelihood that you will run out of cash if a customer is late to pay or you have to fork out for unforeseen costs.


If you’re worried that delaying payment will cause you to forget deadlines, use your accounting software to send you a reminder when payments are due.


3) Ask for Deposits

Service-based businesses often ask for a deposit upfront before beginning work, so consider adopting this practice to improve your cash flow. Furthermore, if a project requires you to pay for more expensive materials you are within your rights to ask for the cost of goods upfront so that you aren’t left out of pocket.


4) Offer Bulk or Annual Discounts

If you provide an ongoing service, you can boost your cash flow by offering an annual discount; for example, 1 month free for customers who pay a year in advance.


Similarly, businesses that sell products can offer attractive discounts to encourage customers to buy in bulk. This not only offers a big cash injection but helps to shift stock, too.


Summary

Cash is king in business, so it’s important for small business owners to work hard to maintain a healthy cash flow. It’s very difficult to grow at a steady and sustainable rate when you are continuously running into cash flow issues. Make sure to employ the above strategies to protect your business bank balance and safeguard the financial health of your business.


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