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Eight tips to improve your company's cash flow position

by , 07 October 2013
One of the benefits of having a cash flow budget is that it can tell you if you have enough money to pay the bills at the end of the month. If you want to improve your cash flow position, be sure to use the following eight tips along with your cash flow budget.

Want to improve your company's cash flow position?

If so, the Practical Accountancy Loose Leaf recommends you follow these tips…

Improve your cash flow position using these eight tips

Tip#1: Have a credit/debtors repayment policy

  • Always follow up debtors payments and ensure they pay within their credit period.
  • If possible, allow early payment terms if debtors pay within a certain period.
  • Don't give long outstanding debtors more credit.

Tip#2: Factoring of debtor's book

You can factor your customer book to speed up the collection process of debtors.

This means that 'you sell your debtors book to someone else and receive the total value of the debtors' book less a handling % up front. The debtor's burden then falls on the other person/entity,' says the Practical Accountancy Loose Leaf.

Tip#3: Stock on hand

  • Don't hold excessive stock levels.
  • Don't invest all your liquid cash in stock.
  • If you have excessive amounts of stock, speed up the selling process with a special promotion.

Tip #4 Gross profit margins

Review your gross profit margins and ensure they're appropriate. Check if you can possibly increase them. Please note, this might not be possible if the product's already overpriced compared to your competitors.

Tip#5: Operating expenses

Review your operating expenses and see if you can cut some of these.

Tip#6: Shareholders loans

As a business owner, you can help the cash flow position by contributing more cash or loans to the business.

Tip#7: Supplier credit policy

Communicate to suppliers and find out if you can get maximum credit terms.

The supplier's credit policy should be in line with the debtors' policy. This ensures you don't pay your supplier before you've received the cash from debtors.

Tip #8: Loan delay repayment

If you have timing problems with cash flows, there are options available:

  • Find out from credit providers if you can pay interest due to the late payment. This could significantly help your cash flow position. Use this only in extreme cases.

There you have it. Using these tips will help ensure you improve your company's cash flow position.

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