By Mike Ward
“When it comes to your small business one of the biggest challenges can be having the cash to grow. There are a number of “cash management” tools offered by banks that can help your business pick up surprising amounts of cash flow without increasing traditional borrowing levels.
As simple as it may seem, before you can identify tools to improve cash flow you must understand your company’s cash cycle. The cash cycle consists of:
- How you get paid.
- What you do with the cash you have on hand.
- How you pay it out.
Getting paid faster clearly builds available cash. Small businesses can’t always negotiate better payment terms with their customers, but they can make it easier to get paid and also move money to their account more efficiently. Start by ask yourself:
- Can you collect by credit or debit card payments vs. billing weekly or monthly? Many larger firms and consumers use purchasing cards and may be willing to pay on the spot.
- If you do accept checks, are you getting them to the bank daily?
Managing cash on hand
When you are managing cash on hand it is important to know what you have, what has cleared and what is outstanding on your accounts.
- Do you have an electronic link to your bank accounts to see and manage all accounts quickly?
- Do you deposit the money as soon as you collect it or store it somewhere and wait until you have a set amount??
Paying dollars out
Small businesses may not always be successful in negotiating paying their suppliers later, but you should ask. In addition, try these tips:
- Use credit/purchasing cards more aggressively. Many great programs are out there that give interest free grace periods, rebates and discounts. In a sense you are self-negotiating a discount and longer terms by using them. Learn about credit cards and don’t forget with many cards you can earn rewards.
- If you are going to aggressively utilize cash from your checking account, having an overdraft protection line set up is critical. You do not want your new found cash efficiency to impact credit ratings with suppliers or your bank.
Electronic collection, cash management and payment tools continue to evolve. Even if you reviewed them in the past, continuingly evaluating them with you banker is important to always be efficiently and effectively managing cash flow. Today’s bankers get a lot of training and support around these solutions and are available as to small business owners to advise them on all the options. While many owners think of solving cash flow issues via a loan there is more to banks and bankers that should be discussed.”
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