– Margot McClelland, Data Center Post guest writer, says:
How your business manages its cash flow is integral, especially in the early stages. However, it’s not entirely about making a profit but also learning how to manage goods. Many businesses have to deal with having their cash tied up in inventory and operating costs. It is common problem among new businesses to have revenue but still not be able to pay bills in a timely fashion. If this sounds like your situation, it will benefit you to read on to learn about strategic efforts like creating an effective accounts receivable system and using inventory management software.
The key to having positive cash flow is to first understand the time frame used by your company to convert inventory, sales, and overhead into an actual profit. This is called your cash conversion cycle. It is a common practice among businesses to use credit. Because of this, they must make monthly payments to entities they owe. So, the cash conversion cycle ends when they have received payment from clients and made payments to entities. Businesses should try to speed this cycle up.
When establishing an accounts receivable system, it is important to gauge how much your business can afford to extend to customers. For instance, if you have a certain amount in inventory, and the customer wants to buy a large portion of the stock on credit, you may want to demand cash or request that a percentage of the total be paid in cash. This will allow you the opportunity to sell to others that want to make a smaller purchase with cash or other verifiable currency.
It also helps a great deal to keep track of credit balances with aging analysis, which is a spreadsheet that determines who may owe you money and whether they are past due. This can be helpful when it comes to sending payment reminders and figuring out when to forward accounts to a collection department or agency. You could also request electronic bank transfer information from customers to ensure that payments are received automatically from them.
A good objective is to have enough monetary resources from customers to pay your company’s bills on time. Late payments can affect your company’s credit rating, which isn’t good news when you need to upgrade or expand.
One area of business that is challenging to keep up with is inventory. Doing so manually can be very time-consuming. There are many different types of inventory management software that you can integrate with accounting databases. These help with customer or internal inquiries about which items are currently in stock or on backorder. There are many ways to start and maintain a system that is easy for all team members to use. By looking into business self-help websites and similar resources, you can find an inventory management method that works best for you and your company.
The sooner you and your team agree on a method and software to use, the faster you will be able to divert your efforts to other, more important business pursuits.
Margot is a guest post writer on the subjects of general business issues and resources.