Sending invoices promptly is key to good cash flow management. As soon as you deliver a product or service, send an invoice to the customer. This will help you develop a habit of sending invoices for payment quickly.
Getting your invoices paid on time is essential to maintaining a healthy cash flow. Here are five rules to help you collect your revenue quickly.
1) Don’t Be Too Lenient
If you’re a small business, there are few greater joys than having a customer pay you on time. However, sometimes, being too lenient with your customers can turn into a cash flow nightmare. If you bend over backwards to give your customers a break on late payments, they may begin to take advantage of you.
When business is slow, it’s tempting to give customers a few extra days to pay. However, the longer you wait, the less likely they will be to pay on time again in the future. Before you give a customer a break, consider whether it could spell trouble.
2) Make Accounting a Simple Affair
Cash flow problems can often be traced to weaknesses in accounting. The system that you use to manage your accounts can be a liability if it’s too complex. A streamlined method of recording your transactions is essential, and so is a system for extracting this information.
The more time you have to spend on recording and filing your transactions, the less time you have to focus on your business. Messy accounting can lead to late payments and late bills, which can have a significant impact on your cash flow.
3) Separate Business and Personal Finances
Business and personal finances can become easily intertwined, which can cause problems. If you’re a small business owner and a freelancer, you may need to use at least some of your business cash to make personal purchases.
If you’re running a small business, you’re expected to take both a personal and a business approach to managing your finances. A simple solution is to set up a separate personal account and draw from that when you need to.
4) Make a Cash Reserve
Having a cash reserve to tide you over during slow months can be the difference between a profitable year and a loss. No matter how well you manage your cash flow, you’ll be at the mercy of seasonal upswings and downswings in your sales.
One of the easiest ways to save cash is to set up automatic savings accounts. Whether you link your savings to your account at the bank, to a money market account, or to an account on your mobile phone, it’s easy to automatically save a small amount each month.
5) Keep Books Updated
Keeping your books up-to-date is crucial to managing your cash flow. Maintaining clear records is important because it means you can easily identify when you’re low on cash and when you should be extracting funds.
Keeping your books up-to-date also helps with cash flow because it helps you avoid errors.
Conclusion
Cash flow is an important part of running any business. However, cash flow management is especially important for small businesses because of their limited resources.
Make sure you are on top of your cash flow with Accountants 247. We are an accounting service that will help you with any financial resources. Get in touch with us to learn more.
