8 Ways to Open the Valve on Cash Flow

A business needs cash to stay in operation. Cash is what pays salaries, bills and materials to make the products. Without a constant flow of cash coming into the business, the doors will not stay open for very long. Here are eight simple ways to help increase a business’s cash flow.

Penalize Late Payments

A business earns money by receiving payments from customers. One of the biggest downfalls to a business is the inability to collect payment. One thing that can be done to encourage prompt payment is to establish penalties for late payments.

Reward Timely Payments

Since collecting payments can be so difficult, it could be beneficial to offer a small discount for any payments that are made early or within a specified time range. This method can pay off, but it is important to evaluate the business and customer to ensure that it will be a worthwhile tactic.

Contract a Third Party to Collect on Old Accounts

A business can waste time and money attempting to collect payment from old account receivables. It could be worthwhile to contract a third-party collections agency to do this job.

Use Interest Earning Accounts

For any cash flow that a business has, the funds should be kept in interest earning accounts. These could be checking or savings accounts, certificates of deposit or money market accounts. Some accounts earn higher interest than others, so it is wise to keep the bulk of the cash in those accounts when possible.

Repair Not Replace

When it comes to equipment, it can be tempting to want to replace old equipment when it breaks. However, if repairing the equipment is less expensive, then it is better to repair it and only replace it when it has truly reached the end of its usable life.

Buy Used

Similarly, buying used equipment is often a better investment. Used equipment that has been well cared for can do the job just as well as new equipment, but at a fraction of the cost.

Establish a Subscription Program

If the service of the business can translate into a subscription program, such as pool cleaning, cable television or magazines, then establish one. This ensures sales for an extended period and gives the business cash up front.

Pay Salaries Bimonthly

Instead of paying salaries every other week, pay only twice a month. This means employees would be paid 24 times a year instead of 26 times which saves administrative expenses on collecting payroll information.

Cash flow is critical to the success of a business. Every penny counts, so finding simple ways to save a few dollars here and there can greatly increase a business’s overall cash.

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