You keep your repayment commitments to those you owe money through the velocity of your cash inflows. You can’t repay the people you owe with confidence when money is tight, and if you can’t forecast when you expect to collect the monies owed to you, stress and dysfunction increase.
Successful cash management is grounded in accurate projections of when you expect to get paid by your customers. Knowing when the cash will inflow allows you to optimize your cash outflows. If you find this too much work, the other option is to maintain high cash reserves so you don’t worry about the timing of money flowing in and out of your business.
If this isn’t an option for you, then master the ability to project the timing of your cash inflows so you aren’t stressing about how much money you have available to pay your bills.
Overview
Cash Inflows are how you keep your repayment commitments to those you owe money. You start the process of gaining and maintaining control over your cash when your cash velocity reflects your customer payment terms.
You can’t project your cash inflow if you can’t forecast when you expect to collect the monies owed to you. Below are six things you can do to improve your ability to pay your bills with confidence by adopting one of the following cash inflow improvement strategies.
- Require deposits or insist on cash payment at the time of service or product delivery.
- Offer discounts to customers who pay early.
- Cease offering payment on credit or establish strict terms of payment on credit.
- Implement a late-payment charge that is communicated upfront and strictly enforced.
- Accept credit card payments.
- Offer automatic bill payments to customers.
The challenge in each of the above strategies for improving your business’s Cash Inflow is balancing the pros and cons. The advantages typically come down to protecting cash, while the challenges negatively impact profitability.