Post image for Get Cash Flowing: From Inventory Management Software to Late Fees

Get Cash Flowing: From Inventory Management Software to Late Fees

in Business Ideas

Whether you have a startup or large-scale business, managing cash flow almost always poses a challenge for you. It can be a serious problem, but you also have to firmly manage cost, especially if your clients don’t pay on time. Even then, you also have to make sure to pay your suppliers in a timely manner. Are you aware that you could possibly earn some revenue and still not be able to pay the bills? From charging customers late fees to inventory management software, here are several suggestions to help you properly manage cash flow.

Calculate Your Cash Conversion Cycle

What is a cash conversion cycle? This is also commonly known as “cash cycle,” which pertains to the duration of time that it takes for an organization to convert resource inputs into cash flows. Income and operating costs are rarely stable in a business, and cash requirements need to be planned for loss, seasonal factors, or one-time large payments. Studying your company’s cash conversion cycle helps you determine the amount of time each net input dollar is tied up in the production and sales process prior to its conversion into cash through sales to consumers.

This metric looks at the amount of time needed to pull together receivables, the length of time the company is afforded to pay its bills without incurring penalties, and the amount of time needed to sell inventory. All things considered, an organization that fails to pay its bills is considered bankrupt. Regrettably, while many business owners give attention solely to their revenues and expenses to manage their cash flow, it is usually poor management of the cash conversion cycle that most of the time leads to a cash crisis in the business. To help you calculate your cash conversion cycle, you can look into some inventory management software that will allow you to know what cash is tied up in inventory.

Get Customers to Strictly Adhere to Your Accounts Receivable Policies

One of the most significant methods in managing your cash flow is to keep your accounts receivable in check. Make sure that you implement your accounts receivable policies firmly, so your patrons pay you in a timely manner. To achieve this, you need to send out account statements on time to your customers. There are also customers who prefer to pay for their purchases using their credit cards. For security purposes, you can conduct a credit history background check beforehand to make sure that they have the ability and capacity to pay you promptly and on a regular basis.

It is best for your business to charge customers a penalty fee for late payments to discourage them from settling their dues behind schedule. Moreover, you can send your customers reminders before payment due dates through snail mail, phone calls, and emails. The majority of them will surely appreciate the extra effort, though some may take this as spam, so make sure to give them an option to opt out of this. Once you have established a long-term and functional relationship with your customers, you may start thinking about creating an accounts receivable aging report. With this report, you are able to keep track of the payment patterns of your regular customers. Aside from that, it gives you the information on which clients need to be reminded every now and then in regard to their payment schedules.

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