Cash flow management is one of the most important parts of success in business, and it doesn’t matter if you’re talking about a tiny startup or an international operation with several branches in different countries. In many cases, streamlining costs is more reliable as a method of increasing revenue than going after more market share, and most companies find there is a give and take between pursuing efficiency and building up the reserves needed to expand to take more business. Unfortunately, streamlining without a clear eye for priorities can cut off resources you need, so finding the right strategy is vital to any long-term attempt to grow. Here are a few ways you can keep your company from overspending without depriving it of vital resources.
Inventory Efficiency
Carrying inventory you don’t need means sitting on capital you could be putting to use elsewhere. While some businesses opt to finance inventory as an asset to regain some of that working capital, the strategy is not always the right choice. If you have to buy up a lot of goods for a known spike in demand, it’s a great way to operate. In general, though, you only want to carry what you can sell in a reasonable period of time, so you can’t just stock up and wait for demand to spike. You need a form of demand forecasting that allows you to slim down your holdings when you’re not anticipating a huge push for a product, and it needs to be accurate enough to warn you when it’s time to start increasing those inventory purchases again.
Streamline Invoicing and Payment
If you’re not a cash and carry operation, another big bottleneck can form up in your cash flow from invoices that sit unpaid, and you need a strategy to make sure they don’t sit for too long. Tightening up your payment windows so customers know they are expected to send in their payments sooner can be a big help to this, but it works best when you also streamline the process of invoicing itself, putting them in the hands of customers sooner after the work is done. This shortens the window between finishing the work and getting paid as much as possible.
You might also want to consider a line in the sand option like factoring to move invoices off the books once they reach a certain age. It might mean writing off a portion of their value, but a lot of times that’s better than waiting indefinitely for a payment.
