One of the first and best ways to boost cash flow is managing all delinquent accounts. Accounts over 30 days must be reviewed to identify those with a low probability of being collected without more intense effort. These accounts result in increased Days of Sales Outstanding (DSO) and eventually debt writeoffs.
What are 3 ways to increase cash flow into the business?
- Control your accounts receivable and review customers
- Renegotiate with your vendors on both price and terms.
- Assess your marketing plan and see if there are other business services to offer.
If the account is not responding to your collection efforts — outsource it to a debt collection agency. Keep in mind that an account 60+ days past due has only a 60% chance of being collected.
Cash Flow Strategy
Many business focus their attention to “profits”, while a good cash flow strategy can be the difference for business failure. In fact, for a financial component of profits may be possible if you have the cash to pay the expenses, therefore a good cash flow management can be the road to success. A cash flow strategy can be as easy as A,B,C or a very complex process, establishing your cash flow budget to see at the end of the month the cash available and identifying the cash need it for investments. You can implement a business plan to develop the cash flow strategy and the company budgets.
Consider the average number of days to collect money from your customers, Days Sales Outstanding (DSO) and the average number of days to pay your bills, Days Payable Outstanding (DPO) then:
- Cash flow gets affected when, DSO > DPO, means that your customers are not paying on time, cash from your business is departing
What to do when you have negative cash flow? We have to collect your receivables in a quicker manner (quick debt recovery), and obtain better policies with your providers. Get help to establish a solid sound cash flow strategy, look for a commercial collection agency that can help you with the initial process.