Entrepreneurs should try and protect their cash flow at all times, but far too many businesses are running on credit with very little cash flow to cover unexpected expenses. Cash is king, and when a business doesn’t have cash, borrowing will add interest and can be expensive to in the long-run.
As a business owner, you should have cash available, and this requires proper cash flow management and protection.
Ways to keep the cash flow flowing include:
1. Limit Liabilities at All Costs
One major mistake that businesses make is that they do not limit their liabilities. Statistics show that 36% – 53% of small businesses will be involved in at least one form of litigation every year. If a business barely has the cash flow to keep the lights on, this litigation can lead to bankruptcy or foreclosure.
A business needs to protect against liability, and this is done through proper insurance policies.
The policies that an entrepreneur should have are many, and include:
- General liability
- Workers’ compensation
- Health (for yourself)
- Auto insurance
Workers’ compensation is an important policy, and it limits the business’ liability in the event that an employee is injured on-the-job.
“Almost all injuries, whether physical or psychological, are covered by the Act. A narrow selection of occupational diseases is covered by a similar law known as the Occupational Diseases Act,” states Strom & Associates.
2. Credit Histories and Policy Checks
Are you reviewing your business’ credit policies and credit histories of clients or customers? You should be. You need to manage the credit of your customers to ensure proper cash flow management.
Eliminate customers that are no longer profitable, and also make note of all customers that are slow to pay.
Businesses have a right to not extend credit to their customers, and if a customer pays months after an invoice is due, your resources may be better saved for another customer.
It may even make sense, and help with cash flow, to offer cash discounts so that your customers pay sooner.
3. Utilize Collection Services and Streamline Invoice Reminders
Collection agencies are paid because they will take on the burden of collecting on your invoices. The goal is to get your money, and it is these agencies that will work on your behalf to ensure that your invoice is paid.
Before an invoice goes to collection, reminders and encouragement to pay an invoice should be sent.
Streamline your invoice reminders, allowing for automatic notices to be sent when invoices are overdue. Not only will this help save you time and resources when sending out overdue reminders, but you’ll also find that invoice collection is faster, too.
Of course, you can also work on your cash flow by negotiating contracts with your suppliers. If you have built a strong relationship with the supplier, you’ll want to discuss the possibility of extending payments to the supplier.
You may be able to extend your payments from 30 days to 90 days, and in this case, you’ll be able to keep more cash flow on hand to keep your business running on solid ground.