Cash management is vital for any business, especially in the initial stages.
The term cash management encompasses the collection, concentration and distribution of cash and the aim: managing the cash balance to maximize available cash so that the insolvency risk is eliminated.
There are several things you can do to effectively manage cash.
Saving Money by Cutting Expenses
- Save on your energy bills by installing energy efficient lights and equipment and prudent use.
- Scout around for good deals for your telephone. As far as possible, communicate via email. If you need multiple phone lines, consider the VoIP option.
- Print only what’s necessary. Buy recycled cartridges so you get them cheaper.
- Buying office supplies in bulk will earn you discounts and help you save a great deal.
- Assess whether the Office space you have is more than what you need, also check out if you can get cheaper space if location is not important.
Quicken your Receivables
- Accelerate customer orders by enabling orders by fax and email, and send out invoices immediately.
- Check the credit worthiness of new customers before offering them credit.
- Evaluate your payment policies, and tighten them if necessary. Appeal to your customers and arrange more favorable payment terms.
- Establish your payment terms at the outset, so there is no confusion or misunderstanding. Setting ground rules will help your customers to be aware of due dates and fees.
- You could also consider decreasing the time interval at which your customers are billed; if you bill them quarterly, you could change it to monthly, monthly payments can be billed weekly, and so on.
- With consistent late payers you may need to remind them with phone calls and letters.
- Don’t dispatch new orders if the customer has long overdue payments.
- Make sure to deposit checks as soon as you receive them. At the bank, insist that the checks be made available in the shortest time.
Slacken your Payments Speed
- Wait till the last date to make payments.
- Use business credit cards when you’re traveling for business reasons. You have a grace period or about a month to make the payment, this frees cash for other purposes.
- Limit the advance payments you make to employees to urgent situations only.
- Reassess your relationships with vendors, switch to those who offer more favorable payment terms.
- Pay bills or loans that have high penalties first. You can stretch payments that have no or low fines.
Bank Matters
- Be sure to balance your check book and reconcile your bank statements. Even banks can make mistakes sometimes.
- Maintaining large cash balance is not good business sense. Use this money to pay off loans and bills, or invest it instead.
- Get a comprehensive list of bank charges for services and keep sufficient money to cover those, and withdraw the rest.
Remember
- Minimize your inventory; it’s dead stock till it’s transformed into cash. Manage your inventory well depending on sales volumes.
- Order stocks depending on the time it takes to reach you, and not too many days in advance.
- Employ continuity sales or service; offer annual deals at discounts but with upfront payment. This way you will get a lump sum and customers will be happy too.
Photo credit by: Seanmcmenemy
