Cash flow issues can happen to everyone. Even the largest, most successful companies experience issues with cash flow every now and then. But even though money problems are inevitable, it’s important to address it quickly in order to avoid irreparable and costly damage. Many business owners apply for a business line of credit or other types of business loans, while others attempt other solutions in an effort to solve cash their flow problems.
Dealing with a cash flow crisis never gets easier. It often takes a toll on your business, especially when it’s not remedied immediately. For this reason, here are five ways to effectively solve cash flow issues.
1. Improve Invoicing Process
Is the accounting system you use to invoice your clients efficient enough? Is the entire process fully automated? If you’re still using pen and paper to invoice your clients, it’s time to get an upgrade. Automating your invoices makes it easier for you to send and collect invoices from your clients; letting you know who’s paying on time and who’s overdue, and it also helps reduce human error.
You can choose from a variety of accounting automation software such as QuickBooks, NetSuite, FreshBooks, and more. With an accounting software, you can integrate all your financial information in one place and send invoices directly to your customers.
2. Avoid Purchasing Unnecessary Inventory
Many business owners think they need to hoard merchandise to ensure they have what their customers might need. While it’s important to meet the demands of your customers, it’s also important not to go overboard. Working capital ties to unsold inventory are one of the most common causes of cash flow problems among small businesses. It’s better to keep your warehouse stocked at a level that meets, but doesn’t exceed customer demand.
Before stocking up, evaluate your business and figure out which sells more. Start out with a small amount of inventory and go from there as demand increases. If you’ve run out of a certain item, ask your customers for their contact details so you can inform them when it’s back in stock. Additionally, you can use the contact details to send newsletters to your customers (with their permission).
3. Cut Back on Expenses
Cutting back on expenses seems like a no-brainier approach when it comes to fixing cash flow problems. Just be sure to check that you’re cutting back on the unnecessary expenses, and not ones that can actually hurt your business.
For example, instead of buying reams of paper that costs $$$ every month, you can reduce expenses by going paperless. Another example would be purchasing secondhand equipment instead of new ones. Reducing unnecessary expenses allow you to maximize the amount of cash flow your business receives.
4. Encourage Your Clients to Pay Faster
Companies with cash flow problems can’t wait for 30 to 90 days before getting paid. For this reason, it’s important to encourage your customers to pay faster by making it easier for them to do so. Setting up an auto-billing cycle for your clients helps a lot. You can automatically receive regular monthly payments directly from their bank accounts or from their credit card. By knowing exactly when the cash is coming in, you can effectively manage your cash flow.
Another way to encourage your customers to pay faster is to accept online payments. Paying bills with credit cards are super convenient. If your clients can pay online, they may be encouraged to pay their invoices immediately.
5. Apply for a Small Business Line of Credit
The quickest way to fix pressing cash flow problems is to apply for short-term financing solutions – like a business line of credit. A business line of credit works much like a credit card where lenders assign you to a predetermined credit limit. You can withdraw funds from your credit line as needed and you only have to repay the amount you’ve withdrawn plus the interest, not the entire credit limit. A business line of credit is a great option if you don’t need a large amount of money. This type of financing can serve as a financial cushion for companies that want to prepare for the future.
Solve Cash Flow Issues with a Business Line of Credit
As mentioned above, a business line of credit is an effective way to instantly boost cash flow. At SMB Compass, we offer a business line of credit (along with other types of loan products) for small businesses across the United States. If you want to know more about the qualifications for a business line of credit, simply call us NOW at (888) 853-8922 or email us at firstname.lastname@example.org.