In need of a healthier cash flow? Africa Report gives you five easy steps to make your cash flow a lot healthier than its current state.
By Craig Falck for Africa Report
Photograph: © Vladvitek | Dreamstime.com
As previously discussed on Africa Report, the cash flow is a statement of the monies coming into the business and leaving the business. It’s not that difficult to improve your cash flow if you know what you’re doing. Just follow these easy-to-implement ideas…
1. Reduce your customer payment plans. Offer customers incentives such as free delivery or discounts if they pay within a certain time (say, 30 days instead of 60 or 90). This should give customers the push they need to pay you on time, especially the sticklers who have put the next tip into their cash flow improvement plans…
2. By paying your accounts at the last minute, you will be able to hold onto cash for a longer period and not seem to be paying out money every day. If Tip 1 works and you receive payments on a more regular basis and only pay money out at the end of every 3-month period, you should be able to improve your cash flow.
3. Raising prices should be done at regular intervals and in moderation; not one massive increase at odd intervals. You have competition in every industry, so why not charge comparable prices? There’s no reason for you to charge R1 when your competition is charging R4 for the same product. Also, if you’re selling your product too cheaply, you may be unjustifiably and incorrectly labelled as offering inferior products. This will scare customers away and then you’re in trouble.
4. Don’t tie up money in stock or inventory that will not be used for some time. Instead of buying 10 000 pages of printer paper when you only use 1 000 a month, buy 3 000 so that you have enough to cover any unforeseen circumstances but at the same time are not keeping ridiculous amounts on hand.
5. In the long run, buying is always cheaper than renting. However, for cash flow purposes, it makes sense to tie up small amounts of money in equipment and property than to lay out a large amount at once. These rentals are also considered tax-friendly, so you’ll be benefitting from that too.
It’s important to maintain a healthy cash flow for your business, but it’s not always the first thing you think of doing. However, by just tightening up a couple of aspects and philosophies, you can easily improve your cash flow in the blink of an eye.
