It’s not what you pay; it’s how you pay. Read on for some handy cash flow tips in the last part of our five part series on cash flow management.
Every business needs to keep a close eye on its expenses, especially if you are growing and you risk being short on cash. It’s important to track and review not just what you are paying but also when and how you are making payments. Always keep an eye out for costs that increase faster than revenue, and follow these steps to stay on top of what you are spending.
Be efficient in your stock orders.
Over-ordering of stock or failure to convert stock quickly into product and sales can rapidly increase your costs in terms of warehouse and storage expenses. If you want to optimise your stock costs, try to plan your order quantities as accurately as possible to shorten the time that product spends on the shelf. Follow these tips to manage your stock more effectively:
• Order what you need for a fixed period of production and to make the most of bulk discounts.
• Look closely at bulk discounting and understand whether repeat orders are more cost effective than warehousing costs for stock that won’t be used for a long time.
• Don’t hold on to old stock – it costs to store stock that you don’t need. If you don’t have plans for it then try to convert it into cash by selling it.
Take full advantage of the payment terms of creditors and suppliers.
It’s important to be on good terms with both your creditors and suppliers, so naturally you’ll want to make sure that you pay them on time and comply with their payment terms. Remember to avoid making the mistake of paying early and costing your own business more by taking available cash out of your bank account. Here are a couple of handy hints for managing your payment terms to maximise your cash flow:
• If your agreements require you to pay in 35 days don’t pay in 10. It’s better to keep the cash available in your account.
• Use payment methods that allow you to make payments as late as possible whilst meeting agreed terms, i.e. electronic funds transfers.
Look closely at your supplier relationships:
Choosing the right supplier is never as simple as selecting the lowest price. It’s important to consider all your options and understand whether there is more efficiency for your business in choosing a longer payment term or a supplier who will be more flexible to your needs. Consider these elements when making your choice:
• Carefully review both payment terms and price when choosing a supplier – you may find that flexibility is worth more to you in the long run than the cheapest price.
• Look closely at early payment discounts. Your cash may be worth more to you in your bank account than you would save by paying ahead of due dates.
• Keep the lines of communication open so that if you have a cash flow issue that might require a late payment you can talk to them about it and see if it’s possible to arrange one-off extensions.
Introducing Fifo Capital
Fifo Capital specialise in providing alternative finance solutions to small and medium sized businesses. If you’re looking for great customer service combined with a smart product that will boost your cash flow – contact us here today.