The monitoring of the cash the company is an important task for the entrepreneur, poor appreciation can cause problems that may, in the worst case, lead to bankruptcy. When the company is fragile (recent launch for example) or when the activity is going through a complicated period, the entrepreneur must think about the solutions to be implemented to improve the cash flow of the company .
In this article, we will discuss the principal means available to the entrepreneur to improve the cash flow of the company .
Improve cash flow by working on trade payables
The post vendors is a first item that can allow you to imrove your cashp if you manage to lengthen your payment terms.
You have the possibility to:
- To ask for any payment at maturity if you usually pay down payments, or to request a reduction in the amount of these,
- And to ask for extension of the settlement deadlines proposed by the supplier.
The margin for maneuver is however limited:
- By the intentions of the supplier himself, the balance of power and relations with it will be decisive in order to improve your settlement conditions,
- By the law which sets maximum settlement periods.
For more information on this last point: payment terms
The settlement mode can also improve your cash flow but on a small scale. For example, a payment by check can allow you to earn a few days before the disbursement compared to the realization of a bank transfer for example.
Improve cash flow by working on trade receivables
A company can also improve its cash flow by working on its customers, in order to recover more quickly its debts.
First of all, effective management of customers who are late in payment must be put in place: systematic re-launch, formal notice …
The company must also put in place procedures for accepting new customers to avoid bad payers: it is better not to realize a market and lose a margin that undergo a transaction unpaid in full.
Factoring can also enable the company to recover cash more quickly: the company sells its trade receivables to a factor that is responsible for recovering them. Compensation is paid to the factor, which indirectly reduces the margin of the company.
Finally, you can also negotiate new settlement conditions:
- By updating your general conditions of sale with a shorter settlement period,
- By renegotiating your commercial contracts,
- By introducing a system of down payment to the order,
- By reducing your delivery time if the company requests payment on delivery,
- By seeking solutions to reduce customer disputes …
Improve cash flow by working on overheads
A delicate financial period may also be the right time to analyze all of your overheads in order to:
- Find solutions to reduce them, stop some expenses that you can do without,
- And renegotiate the terms of settlement with the partners (as discussed with the accounts payable).
Here are some examples of work-overheads:
- Is it possible to find other providers (accountant, insurer, telephony, internet …) who could offer similar services at a lower cost?
- Is it possible to consider relocating the company to a cheaper location without affecting the business?
- What are the overhead costs that are not essential? How can they be reduced? Can they be deleted?
Here are two solutions that reduce the weight of your overhead:
- Solicit a service provider specialized in the reduction of external costs (it exists and the latter pays for itself on the savings it provides you)
- And work with purchasing pooling solutions.
Substantial work on each overhead item can dramatically improve the cash flow of companies for which external expenses represent a significant item.
Other ways to improve cash flow
Several other solutions can improve the company’s cash flow. It should analyze what impacts your cash flow and then study how you can act on these items.
- Try to renegotiate your bank loans by extending the repayment period and / or finding cheaper rates,
- Use the leaseback with the assets: transfer of the as