A healthy cash flow and effective cash flow management are vital for every business. On the other hand, poor cash flow management is one of the most common causes of business failure. So how can you improve your company’s cash flow? Here are three ways!
#1: Monitor Cash Flow
It’s important to constantly monitor and measure cash flow. Only then can you identify problems and take action to plug gaps.
To monitor your cash flow, you must:
- Measure your cash flow from various sources (INFLOWS):
- Calculate monthly expenses (OUTFLOWS):
Net cash flow = Outflow – Inflow
Measure inflows and outflows regularly to keep an eye on net cash flow.
#2: Increase Cash Flow
Here are some ways to increase cash flow and improve your company’s financial health:
- Liquidate unused or obsolete inventory or equipment
- Incentivise customers with early payment discounts
- Charge fees for late payments
- Offer multiple payment methods
- Add new products or services to increase sales
You can also apply for invoice financing or business funding to increase cash flow. Examples of the latter include lines of credit, business loans, and business credit cards.
#3: Maintain a Cash Flow Reserve
A reserve can help your business survive if there are current cash flow gaps. Build this reserve with a business line of credit (LOC) and maintain it with lean operations.
Conclusion
Your business depends on a positive cash flow. Practice proactive cash flow management. Regularly monitor cash flow, control expenses, and maintain a cash reserve. If you can do all of this, you can effectively manage cash flow and boost your company’s bottom line.
