The old saying cask is king? has never been more true than during the recent uncertain times.Businesses that understand this and look to maximise their cash holdings have been able to weather the storm and ensure their survival.
Even if you find that you have a ready supply of liquid cash, you may prefer to have money sitting in your bank account than that of your suppliers and customers. This article looks at ways you can improve your cash flow using real-world practical methods.
Method #1 – Reduce that stock
This is something that pretty much any stockholding business can be guilty of from time to time, but the fact is that excess stock sitting on the shelves is just cash tied up in inventory.
The first thing to do is to analyse your stockholding to work out what sells quickly and what doesnt. Most companies find that their inventory will almost perfectly comply with a Pareto distribution with 20% of the stock providing 80% of the profit/sales and vice versa.
If you have a small amount of profitable, fast-moving items then holding a large stock isnt necessarily a problem.
Where you start to lose cash is when you have a lot of slow-moving unprofitable goods.
Check out economic order quantities and reset your order levels and then look at ways of shifting your slow-moving items on.
Black Friday and January sales were originally conceived as methods of moving on this type of stock so think about having your own event, sell wholesale to other businesses or start giving incentives to people to buy in bulk and turn that rack space into money in the bank.
Method #2 – Sell off unused assets
Fixed assets are a similar story.
So many people hold on to plant and machinery just because they may come in useful? when in real life they rarely do.
Be strict with yourself. If you have assets that are producing no economic benefit then sell them off and use the cash for something more productive.
Method #3 – Get a speedy merchant services provider
If you take card payments or are trading online then you may well have found that your current merchant provider hangs on to your cash for days (and sometimes weeks) before crediting your bank.
What they are doing is using your cash to make money on the markets and this is value that should be in your bank account, not theirs.
They may say it is security against chargebacks or fraud but if you have a good track record it shouldnt be happening so it’s time to make a change.
Choose a provider from this list of the best merchant services for businesses, that will give you value in your account quickly.
Method #4 – Leading
Leading is the practice of getting your accounts receivables balances in ahead of time.
Every Dollar, Pound or Euro sitting on your accounts receivable ledger is money that isnt sitting in your bank so making efforts to reduce your aged receivables will pay dividends here.
The balances will sit in two categories; overdue and not due.
For overdue balances the answer is simple, get in a great credit controller.
Credit controllers are worth their weight in gold and once your customers realise that they are going to be chased (politely) for the cash they start to pay a lot quicker.
Balances that arent due can still be chased.
Your credit controller can call a couple of days ahead of the due date just to check? that everything is OK with the invoices and that the customer has received them.
Alternatively, you can offer a small discount to get customers to pay ahead of time and the value of the money being in your account may make giving a discount worthwhile and reduces the risk of an account going bad.
Method #5 – Lagging
Conversely, you want to make sure you pay your accounts as slowly as possible.
Make sure that you are paying on the due date and not before and do a proper financial analysis to see whether it is really worth paying early for a very small discount.
Wed never suggest paying late but there is nothing stopping you going to your suppliers and telling them how much you really like using them if only they would advance you 60 days instead of 30…
Method #6 – Buy on approval or consignment
If you want to fill your shelves but don’t want to part with the cash then buying on consignment is the way to go.
This is where the supplier delivers goods that are paid for only when the business sells them on.
This method is used extensively in the motor trade and it’s how large supermarket groups manage to fill their stores.