Business Insights

How to boost cash without depending on external financing

The answer is: manage your suppliers and your customers. You have to watch closely your cash flow and cash cycle (what is the cash cycle? Will talk about it in a later post). In simple words you have to reduce the time it takes to collect your receivables and prolong the payment to your suppliers.

Here are some tips that can help you speed up your collection process:

1. Send bills online and encourage electronic payments, by credit card or by direct debit on your clients’ bank account
2. Give discounts on bills paid within 15 or 30 days
3. Revise billing schedule: ask you clients in which part of the month are more comfortable paying their bills. This can facilitate timely payments
4. Tighten up collections: when payments are late, don’t delay in calling, sending letters and email messages
5. Switch accounts that are overdue to cash on delivery
6. Turn over delinquent accounts to collections professionals.

Sometimes it’s even wise to consider hiring a credit manager, or someone who is in charge of receivables. It is said that good collection procedures can generate more cash in an hour than a salesman can produce in a week.

And here are some ideas to help your company to hold on its cash for as long as possible

1. Stop paying bills upon receipt. Try 45 days or even 60. Or even 90, divided in 3 installments, after 30/60 and 90 days.
2. Pay electronically, so you can delay payment until the last minute.
3. Make payments on Friday to take advantage of the “float”, that is two non-working days.
4. Pay employees twice a month instead of every other Friday: choose a day of the week when usually your cash is higher.
5. Use credit cards (within reason) to stretch out payments.

The more effectively your company manages  its cash cycles, the greater the opportunity to pay off debts, invest in the business expand and become less dependent on external financing.