Cash Flow Tips for 2022

January 4, 2022

Here are some cash flow management tips for your business.

• Have a plan to pay your bills. Forecast the flow of your key bills over the next twelve months. Review your bills, sort according to priority, and schedule payment dates so the most important items, like rent and payroll, are paid first. Then pay your bills on time, neither early nor late. Take as many discounts as possible.
• Negotiate terms with suppliers. Some invoices are due on receipt; others, a few days later. Negotiate the longest payback terms possible and ask for early-payment discounts. A two-percent discount might not seem significant, but on bulk orders savings can accumulate. Depending on your industry, you might set up a vendor payment schedule that better reflects your accounts receivable payment behavior.
• Quickly collect receivables. When a customer places an order, try to get paid as soon as possible by sending invoices promptly, confirm that the invoice was received, and immediately follow-up on past due payments. Also consider discounts to customers who pay quickly, and an option to pay invoices online instead of taking several days or longer for a check to arrive via mail.
• Track inventory turnover. The inventory turnover ratio measures the number of times inventory is sold and replaced in a given time period (annually, quarterly or monthly). It’s calculated by dividing cost of goods sold by average inventory. Frequently calculating this ratio is a great way to see if you have inventory that has gotten stuck in your warehouse (and ultimately not converted to cash!).
• Be smart with debt. As a general rule, consider taking out a loan of no more than 75% of an asset’s value, and aim for loan terms that don’t exceed the useful life of the underlying asset. Debt can be a valuable tool for growing and sustaining your business, but be careful not to overextend.

Please call if you have questions about how to be better at managing your cash in 2022.