How To Fix Negative Cash Flow
Updated: Jan 12, 2019
Negative cash flow is a major reason why more than half of businesses don’t survive past their fifth year. Below I listed five steps that your business can take to fix cash flow problems: 1. Keep your books in order Many business owners put their bookkeeping aside because they are too busy with the huge work load. Inconsistent invoicing and not keeping track of customer payments result in poor collections from the clients. The best way to get your business books in order is to use accounting software. Once your business books are in order, you’ll be able to stay on top of how much each customer owes you. 2. Run a credit check Unpaid bills and bad debt can be crippling for any business and can easily occur if a proper credit control system is not put in place. Check the prospective customers's credit history before you extend credit to an individual customer or a company. 3. Manage your payment terms If the payment terms you have set for your customers are out of sync with the payment terms set by your suppliers, negative cash flow can build up over time. The typical example is when your customers have 60 days to pay you but your suppliers want to be paid within 30 days. The best solution in this situation would be to renegotiate terms with your customers and/or suppliers. 4. Ask your customers for a deposit Large orders or projects require your business to spend a substantial amount of cash upfront. That might lead to cash shortages. To avoid cash crunch have your clients to provide you with working capital by asking them for a security deposit. Be consistent and build the deposit policy into your business sales model.
5. With a cash flow forecast, you’ll be able to see which months are expected to have a cash deficit, and which months you can expect a surplus. This is something you can do yourself or ask us to create for you.
Taking the steps described above, and developing solutions to keep cash flowing into your business, will make you successful.