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How to: Improve Your Cash Flow

Half of all local enterprises go out of business in the first few years of operation and poor cash flow is said to be the among the top reasons why, a study revealed. This high rate of turnoever is particularly endemic for food and beverage businesses. This means if you’re running a new business, it’s a no-brainer that you need to focus not only on earning more revenue and attracting more customers but also on the movement of your funds. Being able to improve your cash flow will help make sure you always have the money you need to handle your day-to-day operations and keep your business headed in the right direction.

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So, how do you actually improve your cash flow? The quickest fix is to make sure your customers pay you on time. Believe it or not, delayed payments is one of the biggest factors driving negative cash flow. If your customers don’t pay their invoices on time, you won’t have enough money to cover your monthly expenses, which might eventually lead you to use your own personal funds just to keep your doors open, or worse, going under. Here are a few tips and tricks for how you can get paid on time:

Provide different payment methods

Just like you, your customers are also busy. That’s likely the #1 reason they don’t settle their invoices before the due date. Make things easier and more convenient for them by offering other payment methods beyond the usual bank deposit/bank transfer. You could provide Cash on Delivery (C.O.D), mobile and online payments, or accept payments through all major debit cards and credit cards.

Accept direct debit payments

There will be times that the payment methods you are providing won’t work for your customers (they've often got cash flow challenges too), but you shouldn't let their business drag yours down.  It’s best to implement a strict payment deadline and take a full control over the payment process. You can do this by setting up direct debit payments. Direct debit enables you to charge your customers automatically on the due date, making it the simplest and most convenient way to take regular or recurring payments. We find this the perfect tactic if you’re too busy with your operations and don’t have the time to chase customers for late payments. If they're busy or forget, the payment still comes out. If they've got a lot of bills, yours is automated so it's going to come out first. The same goes for credit cards - you can set up automated billing so you're in control of when the money comes out. Even if the customer still wants the money to come out on delivery, 7 days after or the same terms you'd have with invoices - paying by credit card doesn't mean they have to pay upfront or when they order (although that's a great option for improving cash flow!)

Although getting paid on time is the quickest fix to having a good cash flow position, there are still other low-effort strategies you can put in place. Having positive cash flow is all about getting your cash in early. To make this happen, the best strategies are to reward those retailers who pay quickly, incentivise early payments and automate your invoicing.

Reward the customers who pay on time

People love rewards. So in cases where you find it hard to ask your customers for payment, try to offer them incentives if they pay their invoices ahead of time. This is a win/win situation for both of you. You can choose to give them product discounts or reward them with gift certificates. On the other hand, you can implement penalties or late payment fees for customers who don’t pay promptly. Equally, you can offer even bigger incentives for paying early, or use this tactic to encourage your customers to switch to credit card or direct debit payments so you can control the date that funds come out.

Automate invoice sending

If you want your money to come in sooner, you need to send your invoice instantly - as soonas an order is placed. As a rule - the faster you invoice, the faster you get paid This, however, is easier said than done, especially if you're always “buried” in paperwork - it's often the thing that gets left until last. The best way to solve this? Automation.

When you automate your invoice sending, not only will you reduce your admin work, you’ll also make your invoicing quicker. There are lots of tools (including Ordermentum) that are capable of sending invoices immediately once an order is received. Even better, these tools can also show you who hasn’t paid so you can chase them straight away.

Of course, apart from keeping the money coming in, it’s also important that you come up with a good cash flow forecast to ensure that you have a positive cash flow all the time. There are few things more valuable than having an accurate picture of where all your money is coming and going to help you make the right decisions and know where to focus your time - chasing bills, reducing expenses or getting more customers.

What’s a cash flow forecast?

A cash flow forecast is a prediction of the amount of money you expect to come into and out of your business. Most forecasts cover the next 12 months but if you’re new to this task, you can begin covering shorter periods, like a week or a month. Bear in mind that a cash flow forecast is quite time-consuming to put together, but so long as you can estimate how much money you’ll be bringing in and how much money you’ll spend, you’re on the right track. Here are the two important elements that shouldn’t be missing in your forecast:

  • Your projected sales income: This includes all the income you think you’ll earn in a month (or a week, depending on your forecast’s timeframe). To estimate this, you can use your previous financial figures or sales reports as a basis - don't be too ambitious, if you're trying to analyse whether you can spend more money or trying to make sure you can keep your business open, you're best to keep it on the conservative side.
  • Your estimated expenses: This covers all your expected cash outgoings, including your monthly utility bills, staff salaries, and money needed when replenishing stock. If you’re thinking of buying new equipment or hiring a new employee, you need to list the costs for those as well.

Another effective strategy to stay on top of your cash flow is to reduce your expenses. Remember, you need to have more money coming in than going out for you to have a positive cash flow. Cutting down your expenses is like creating a budget and sticking to it. In a spreadsheet or on a piece of a paper, write down all the things you are spending money on and from there, pinpoint those that aren’t absolutely vital to your operations. This will help you free up funds to grow your business and make sure you can keep covering your other expenses.

It’s also essential that you make use of technology and modern online tools if you want to boost your cash flow. While these tools won’t literally give you money, they can help you to always have an accurate picture of where your money is - who owes you, who has paid, where your sales are at and even provide automatic forecasts. This helps save your precious time so you can focus on the things that really matter, like growing your business or zoning in on just the customers who are worthwhile, instead of being stuck spending all your time on non-payers. Here are some of the useful online tools we know:

  • Accounting software: Adopting a reliable accounting platform will help you come up with a cash flow forecast simply because it can keep track of where your money is right now. They are also capable of generating invoices and sending them to your customers, helping you get paid faster. As you now know - getting paid on time is a surefire way to boost your cash flow.
  • Inventory systems: As a cafe/restaurant supplier, one of your major expenses is replenishing your stock. Hence, it’s crucial that you keep an eye on your inventory, organise your stock, and check its levels before accepting orders to ensure that you won’t waste any money or resources. An inventory system can help you with this. Without the need for complicated spreadsheets or manual tallies, the tool can give you a real-time view and access to your supply count. A good inventory system lets you see all your activities across different business units, production facilities or warehouse locations and can provide you with accurate inventory forecasting.
  • Mobile credit card readers: Credit card readers are also great for ensuring you have a steady flow of cash coming in. Unlike setting up an EFTPOS machine, services like Paypal, Square and Stripe offer tools that turn an iPhone into a credit card reader - meaning your sales reps or delivery drivers can take payments on the go, or you can set up a 'storefront' without having to worry about all the merchant banking hassle that goes with a traditional EFTPOS machine set up.
  • Ordering and payment systems: Like credit card readers, ordering and payment systems also help you get paid on time because they can charge your customers instantly via credit card or direct debit. Though they can do far more than just that. These systems let you take orders as well as manage multiple customers orders from a single interface. Some of today’s top apps, like Ordermentum, even allows you to showcase your current and newest product lines so you can generate more sales.

Ordermentum, however, is far more than just an ordering and payment tool - it is a complete business management system that gives you the tools you need to address each of the cash flow strategies in this blog. Ordermentum helps you:

  • Take credit card or direct debit payments from your customers on any set of terms - on order, on delivery, 7 days after, or a set invoice date that you agree with your customers
  • Offer prompt payment discounts and incentives
  • Send instant invoices when an order is placed
  • Provide a range of different payment options to give your customers flexibility
  • Give you complete insights and accurate forecasts - sales reports, projected revenue, who hasn't paid yet, who pays on time, who your top customers are, what sales are coming and going, production reports 
  • Syncs with top accounting and inventory systems for a complete digital ecosystem
  • And many more features like pick slips, delivery reports, an interactive catalogue to make ordering faster and smoother, and more.

If you’d like to know more about Ordermentum and see how it can make ordering and payment easy and painless, you can talk to one of our team members here.

Cash flow is a serious matter and not paying attention to it won’t just lead to serious financial problems, it can also put you out of business in no time. With the tips and strategies we’ve shared above, we hope that you can successfully improve your business cash flow and keep a great amount of revenue coming in so you can expand faster.

Want more business advice like this? Head on over to our blog.

Avlya Jacob

Avlya Jacob is a content writer at Ordermentum. When not working, she enjoys writing online novels and spending time with her husband.

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