6 Proven Ways To Fix Cash Flow Problems Now
Cash flow problems are the silent killers of businesses. One minute, everything seems fine. The next, you’re struggling to pay your suppliers, your team, and your bills. You’re not alone in this—many successful businesses have faced cash flow crises that threatened to shut them down. The difference between those who survive and those who don’t is simple: how fast they act.
Consider Anita, who owns a boutique. Her store did quite well in its first year of trading: customers loved her selection of fashion, sales went well, and everything was perfect. Then, cash-flow problems managed to seep in: sales went super, but she just couldn’t find enough money on hand to pay her rent and suppliers in due time. In no time, she was out of inventory, and people stopped coming because she was unable to stock anything.
She had only months left before her closure.
Whether this sounds like your plight or not, you are no stranger to most businesses on a day-to-day basis. Fortunately, cash flow doesn’t have to shut you down. Just realize the right strategy you need, and voilà. You get it right now. We take you through some real-world solutions which you could put into motion to fix the cash flow issues that seem to keep your business from running efficiently.
Understanding the Causes of Cash Flow Problems
To find solutions, one needs to understand the cause of the cash flow crunch in his or her business. Most cash-flow troubles do not relate simply to profitability; in a sense, the problem usually relates to timing and management. The following are some of the most common causes:
Delayed Payments by Customers: When the customer does not pay in due time, funds are held up. This usually happens in industries relying on credit sales, such as the construction or whole sale industry. What this means is that you own a consultancy firm, and your clients take 60 to 90 days to pay up their dues. Your bills build up in that period.
Poor inventory management-inventory overstocking or stocking items that do not move ties up money in inventories.
This is what happened with Anita’s boutique: while she had stocked up unsold Harmattan season dresses, the customers were coming to her for rainy season wear. Unsold stock siphons cash flow from her.
Uncontrolled Expenses: Business expenses are frequently out of proportion with the rapidity of growth. It seems that subscriptions, new hires, and office space become overnight disproportionately large, considering actual needs.
Low-Profit Margins: Even when the sales are good, with low margins there’s little cash left over after costs. If the products are sold at a discount in order to beat out competition, this could be a big problem.
Practical Ways to Implement This Information NOW
1. Aggressively Chase Outstanding Payments-no Waiting Around
Probably the fastest way to solve cash flow problems is to collect accounts receivables outstanding. Just don’t wait for your clients to pay on their own terms. Try giving some discount for early settlement, or use some online invoicing apps that can send automatic reminders. In Anita’s case, the moment she put an automatic billing system in place, the payments coming in from her repeat customers started to arrive faster, thus helping her to restock with newer supplies.
- Lock Down Your Payment Terms
Revisiting some of the leniency given to the clients with regard to the schedule of payment handed to them, whereby they are allowed to make the payments in 60 or 90 days, shrinks down to 15 or 30 days. This, too, has to be made very clear for the new clients so that cash would come in, as opposed to going into these long cycles of waiting. - Chopping Unwanted Expenses Asap Go through your expenses with a fine-tooth comb. Find anything that is not adding direct value to your bottom line and cut. That could be some software you hardly use, memberships, office supplies, etc. All those little nicks in the bank account will help. In the case of Anita, some bank savings, when struggling, came in the form of a reduction of unnecessary marketing subscriptions that saved her several thousands of dollars.
- Manage your inventory professionally
If you’re in retail or a product-based business, evaluate your inventory. Too much stock siphons your cash; too little and you’ll lose out on potential sales. Develop a system so you’ll know what’s hot and what’s not. This will ensure you make educated buying decisions. When reworking her inventory system, Anita started stocking up on what her customers loved and eliminated the dead weight freeing up her cash.
- Obtain Short-Term Financing If you foresee a short-term cash crunch, you may consider invoice financing or a small business loan as options. Such options would offer you a cash buffer until you get your finances back on track. But make sure you have a concrete plan regarding the repayment of any amount so that you do not get into debt.
- Raise Your Prices (Strategically) This may sound counterintuitive, but raising your prices—if done thoughtfully—can actually increase your cash flow. Look at the value you’re providing to your customers. Are your prices too low compared to the quality of service or product? Don’t be afraid to raise them if it reflects the true value. This was one of the ways Anita rescued her boutique. She intuitively understood that customers would pay more for such pieces as she carried, and that a 10% plus in price made all the difference in the world to her cash flow.
