5 Simple ways to improving your Business’ cash flow
Cash flow is the heartbeat of any small and medium-sized enterprise (SME) and if your business does not have cash to pay vendors, it is unlikely to remain open for long. Even though cash flow management is the least exciting part of doing business, it remains one of the critical success factors.
Zak Sivalingum, Head of Global Business Development for FNB Business says, “Managing cash flow is not rocket science, but rather a matter of discipline. If you want a quick fix for your small business, you can use a credit card to pay suppliers. However, if you want to make strategic changes, your focus should be to find flexible financing solutions to help improve management of your working capital or cash flow.
“There are certainly more effective and sustainable measures that a business could take to ensure adequate cash flow management. The important factor is to strike a balance between money coming into and going out of your business, through the following tactics.”
Establish close relations with your bank
- Most cash flow storms often hit businesses when they least expect, so it is important to have a ‘go to’ financial partner that you have a good relationship with, and one which fully understands your business. Communicate with your banker and let them know what is happening within your business.
Consider alternative funding
- Bank loans and overdrafts are not the only source of working capital. For instance, invoice discounting (or ‘factoring’) enables a company to grow its facility as its business grows, and is preferable to an overdraft. Do not limit your business to the conventional forms of funding; explore the range of working capital solutions your bank offers.
Evaluate your invoice payment terms
- If you are having trouble with cash flow, try to align your customer and supplier terms of payment. If your average payable (money to be paid by you) is 23 days and your average receivable (money due to you) is 48 days – that is 25 days that you have to cover in your overdraft and this could hinder business cash flow if you do not close the gap.
Make cash flow a companywide priority
- If improving cash flow is a business priority, you should consider aligning it with your employees’ key performance indicators. It is not just the finance department which is responsible for managing bad debts, sales personnel or relationship managers are important players in the process.
