How can I manage cash flow as my business grows?
Rapid growth of a company can be exciting, but it can also result in cash flow issues. A cash crunch can make it difficult to make payroll, pay rent or take advantage of volume discounts.
The good news is, there are ways to manage cash flow in a growing business. Here are four:
Optimize your pricing – Owners seeking a quick fix to cash flow problems sometimes offer discounts to generate cash. This approach is likely not sustainable over time. You will be better served to develop a pricing model that identifies the selling price and volume at which your company maximizes its profits, including seasonable price adjustments. Having a plan in place helps prevent impromptu pricing decisions that could cause long-term damage.
Streamline billing and collections. Credit is a courtesy, not a requirement, of doing business. You can avert many cash flow problems if your customers understand when and how you expect to be paid. Prompt invoicing, as well as following best practices on collections lets customers know punctual payment is expected and important.
Consider alternate payment methods. Would you rather wait 60 days for a paper check to arrive, or receive payment immediately via a card or electronic payment? Digital wallets, mobile technologies and other alternative payment methods can help reduce bad checks and facilitate prompt payment by both retail and business customers.
Automate payment systems. A business can further help itself by using technology to speed the collection process. By automating your lockbox, for example, customer payments can be sent directly to your bank, with funds deposited on the day they're received. Remote deposit and automated payments and receivables processes also make it possible to process payments quickly and methodically.
The bottom line: Prompt payment for products or services is more than just good business. Your growth depends on it.