Negative Cash Flow – Tips For This Cash Flow Problem

August 31st, 2009 | admin | forex educational

When you have a business, it is vital to monitor the cash flow in the business to ensure liquidity of the organization. You need to be able to pay your debts as and when they fall due. To ensure you can operate effectively it is vital to have a cash flow, not matter how simple to give you a snap shot of the business and cash flow performance.

When you have a situation where you have a negative cash flow, this can alert you to potential problems within the business. The first thing to ascertain is whether this is a once off or a small hump which is typical for most business. When looking at the cash flow it is important to know how to cash flow forecast, to ensure you are picking up all revenue and expenses. You can then look at the timing issues.

There is often a timing difference between the cycles of when you pay for things and you receive your income, your cash flow in. You can look at debtor finance if you have a large portion of your cash flow invested in some large sales. If it is a small blimp there are ways to manage the cash flow with things like creditor payment plans and installments. This can assist in the short term.

It is also wise to analyze the cash flow cycle of your business and see how many days it is taking for you to receive your money. How long does it take between sale, invoice of product or service and payment of the invoice?

Depending on how long it takes to receive money in from your debtors, you may like to look at ways of speeding up the payment. For example, can you offer a small discount to encourage prompt payment? Can you offer a bonus to the purchaser for prompt payment? Can you look at altering your trading terms, if for example you offer 30 days, could you change this to 14 days? You can offer this to just new customers if you have a loyal old client base which would not look favorably on this type of change.

You can also investigate forms of payment as an incentive for people to pay you promptly. Do you offer bank transfer or credit card facilities or bill payment facilities? The more options people have of paying, the easier it is for them to action the payment.

Review your debtor system. Do you have the right structure in place to contact your debtors prior to the payment being due? Do you have a staff member or even yourself available to contact your debtors a few days prior to the debt being due? You can then politely mention the amount which is due and confirm they do not have any issues with the service, supply or goods. Amazingly enough, even though this helps your cash flow, when done in the right way this can be looked upon as a positive customer service provision.