Published on
12/1/23 12:06 pm

6 Ways to improve your cash flow management

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6 Ways to improve your cash flow management

If you were recently denied funding, your business credit may have played a role. Almost half of the small business owners who are denied financing get turned down more than once. Given this scenario, it is revealing that 23% don’t know why their applications were denied, while entrepreneurs who understand their business credit scores and ratings are 41% more likely to be approved for a business loan.

Regardless of size and industry, having a suited cash flow management can improve your reputation and lead your company to better credit opportunities and deals.  

Managing your cash flow can positively impact your business credit and help you continue running your business despite being turned down for financing. Here are six ways to start or improve your cash flow management and impact your business credit.

How to Manage Your Cash Flow and Impact Business Credit

  1. Define Your Credit Policy

A credit policy should include a set credit limit, the full terms of your policy, any deposit requirements, what types of payment you take (checks, credit card, etc.), and the customer information you require. Checking a vendor’s commercial credit file through CIAL Dun & Bradstreet before extending credit can help you avoid working with a company that pays slowly or help you decide what credit limit to extend. You can evaluate this through a basic or comprehensive solution to make sure your company is shielded.  

  1. Assess and Estimate Fixed and Variable Expenses

In order to maintain cash reserves, it is always good to reevaluate your expenses. Even if you feel completely sure that your current expenses estimation system works, it is advisable to make an updated assessment of your fixed expenses (expenses you know are going to have continuously) and variable expenses (which fluctuate in occurrence and amount).  

Variable expenses can pop up unexpectedly and could hit differently depending on how much you are prepared to face them. Therefore, it is recommended that you spend more time on this point and try to nail down as many expenses as you can. Once you build substantial reserves according to your company size and needs, you will be able to accommodate unexpected expenses without having to use a credit card or personal assets. 

  1. Plan How and When Your Customers Pay You

Consider putting your customers on a payment plan so that you know when to expect a payment. Take note of any credit card processing rates – these need to be part of your cash flow calculations. Consider automatic renewals, which can help prevent service lapses and keep your cash flow steady. And don’t forget to invoice early! Some companies have lengthy payment schedules – if you don’t invoice early, you may not be paid on time.

  1. Start Forecasting

Cash flow is something that you need to forecast. Do this often! Anticipate when you may get a windfall of revenue or a challenging period with less revenue. Make sure to look at income, expenses, and any surpluses or deficits. When forecasting, don’t forget to take seasonal fluctuations into account. As you make these assessments, don’t fall into the trap of being too optimistic. 

For seasonal businesses, cash flow can be tough: Suppliers might expect you to pay sooner than your customers pay you, for example, but you can ask for a payment plan that allows you time to first get your customers’ payments. And if your existing credit card company agreement requires that you have a monthly minimum, even during your slow time, you might want to shop around for an agreement that better suits your business needs. When working with vendors, smaller orders often cost more per item than larger orders. It may be worth the greater upfront cost to place a larger order if you can do so without incurring additional costs.

  1. Get Professional Help

Many business owners dislike managing the finance and accounting aspects of a company. The good news is you don’t have to do it alone: consider hiring a bookkeeper – someone who can find insights on your financial health using bookkeeping software, and regularly reconcile your numbers. You can also consider hiring a professional to do your taxes.

  1. Pay Your Creditors on Time or Early

Prompt payments are not only important for building relationships with your vendors. They can also help build your business credit as well. Having strong business credit may help you get a loan the next time you apply and may improve your chances of negotiating better payment terms or interest rates.

If you’ve been denied funding – or even if you haven’t – cash flow management should be a top priority. When you take control of your cash flow, you will be better situated financially and can take care of those who depend on you, especially your employees. Well-managed cash flow could also help impact your business credit and prepare you for future loans, helping you grow your business.

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