NFIB

Cash Flow Maximization Methods
04/ 16/ 2003

by Jeffrey Moses

In an uneven economy, managing cash flow is critical. Fortunately, there are a number of proven ways to help maintain the often-delicate balance between cash inflow and outflow:

Accurately record expenditures on a monthly chart.

Know in advance exactly when your bills are due and how much you will owe. If a bill comes in that you will be paying in three months, for example, record it on your chart. When you record all bills in this way, you'll be able to calculate with great accuracy how much cash you'll need for any specific period.

Try to get on a schedule so you don't have to pay all your bills at the same time each month. Being able to stagger payments throughout a 30-day period can be a lot easier than having to come up with all your payments at the first of the month.

"Know thyself," say the wise men. This adage can be the basis for improving cash flow.

Too often, small companies don't look internally when seeking ways to immediately improve cash flow. Adjustments of internal costs, however, are usually easier than trying to convince customers to pay more quickly. Operating costs that often can be immediately reduced include: inventory costs, utilities, travel expenses, phone expenses, delivery and shipment costs and executive compensation (which often is set too high during a company's start-up period). Be ruthless when cutting overhead and other internal operating costs.

Reduce your offers of credit to customers.

Delayed payments can be especially difficult for a small company in troubled times.

Speak with your customers' accounts payable personnel to speed delivery of your payments.

If payments that once were made within 30 days now tend to drift to 60 or 90 days, remind the person writing the check that 30 days is mandatory. It's likely that you'll be speaking with a person who has been instructed to lengthen the time of payment. Tell them that you understand their company's decision, but insist that as a small business owner you do not have the luxury of waiting 60 or 90 days for payment, as a larger company may be able to do.

Consider offering discounts for early payment. Many of your customers will take advantage of a 5 percent discount for payment within 30 days.

Design your operations so that whenever possible you avoid unnecessary costs.

These include banking and ATM charges, late charges on payments, high credit card interest (consolidate to lower interest cards) and interest on extended lines of credit.

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