Cash flow basically shows the inflows and the outflows of the cash. And a cash flow statement typically includes the cost on operations, financial activities and on the investments done. These statements show you if the positive cash flow (profits) is more than the negative cash flow (expenses). If the positive cash flow is more than the business owner need not worry; but if the statements show rise in negative cash flow an immediate intervention is necessary. But the question is how does one fix the recurring cash flow problems?
Let’s find out…
1. Short term finance
Short term finance caters to the needs that arise in the small period which is usually less than a year. It is needed to manage the uneven cash flow or for seasonal businesses. It can be in the form of
· Trade credit – It is a credit which is given by one trader to another when any goods or services are brought on credit or loan.
· Short term loans – These are the loans given by banks after a careful study of a business’ financial performance
· Business line of credit – There is a limitation in the usage of the credit here. The business will have to pick up a loan as per these limits and payback once they receive the amount from the customers.
· Invoice discounting – It is a type of loan taken against the company’s receivable unpaid accounts.
· Factoring – Here the company’s receivable unpaid accounts are sold to the third party for money.
2. Long term finance
Never invest your working capital to buy large assets like the machinery or real estate for your business. Rather take long term finance such as bank loans, bonds, lease etc. It helps in faster growth of the business and stability by reducing risks from the borrowers and thus increasing the longevity and scope of investments.
3. Speedy recovery
Recovery of your receivables will happen only when you expedite the process of billing. Send a clear, crisp and quick invoice as soon as possible. Waiting for the end of the month will only add to the weight of the cash flow problems. Invoices should be generated as soon as the products are delivered to the recipient. You may want to consider timely billing and/or giving discounts to the customers for timely payment of bills. For instance, quick payment of electricity bills usually means that you save some amount of your net payable.
Following up is a part of the speedy recovery. Most of the times, business owners either forget or neglect to take follow-ups. And the communication gap adds to the problem of recovery which ultimately causes issues in managing the cash flow of the business.
The reason why websites like quikr or olx have become a favourite of the consumers is that it helps them liquidate their idle assets. Same goes for any business. If things are becoming obsolete it is better to sale them in return for cash before it turns to dust.
5. Payables to be delayed
If you are to pay a debt but you can manage to convince the lender that you will pay the amount in a few days’ time, having a good rapport ensures that the lender agrees to this deal. This arrangement means that you have delayed your payables and now you have some amount with you which can be utilized for other purchases. Make sure that you delay the payables but without levying a penalty for your business.