If your business is to succeed, it’s essential that you maintain a healthy cash flow.
When and how you pay your bills can make all the difference to a start-up or growing business.
The cash flow equation has two sides: Collect it quickly and spend it slowly. Here are some tips for spending it slowly.
Negotiate vendor terms
You want shorter terms for your customers. But as a customer, you want the longest terms possible.
Talk to your vendors. See if you can negotiate longer terms or discounts for quicker payment. If you are a significant customer, you may have leverage here. Although most suppliers have terms of 30 days, you may want to ask for terms of 60 days or 90 days.
Perhaps you could persuade the vendor to bill you monthly instead of weekly. (This is the exact opposite of what you are advised to do for your customers.) If they hold your purchases in their system longer, it will keep them out of yours and increase the amount of time your cash stays in your system.
Control your inventory
In growing businesses, it’s easy for inventory to get out of control and devour the company’s cash. Using turnover ratios will help you determine if your inventory is at the correct level.
If you need to reduce the level of your inventory, you might want to begin by working with your vendors. They may be willing to store a certain amount of inventory, which moves the carrying cost to the vendor.
Pay with a credit card
If you have a credit card with no annual fee and you’re able to pay off the balance every month, this option won’t cost you anything. Simply pay your vendor on the due date with your credit card.
The credit card company will bill you in one to three weeks, giving you access to that cash in the meantime. Be careful, though. If you let this get out of hand and don’t pay your balance each month, this option could cost you more money.
Check into cash-back offers on credit cards as well. If the credit card company provides a cash-back option and still has no annual fee, it could mean money in the bank. Read the terms and conditions carefully. Don’t get caught by rules and nuances that will cost you.
Renegotiate with your bank
If you feel your bank’s loan payment is choking your business, ask the bank to restructure your loan. Often in an expanding business, repayment of the principal is too rapid.
Remember, if you don’t let the bank know, it won’t have the opportunity to help. If the reason for the restructuring is reasonable, most banks are willing to accommodate your request.