5 WAYS TO AVOID A CASH CRUNCH!

PLAN CASH FLOWS

Strategically time payments to vendors (instead of paying invoices when you receive them) so that you can:

1. Take advantage of any available trade discounts and save money.
2.  Avoid having to dip into a line of credit and then having to pay the related interest on the outstanding balance.

SCREEN YOUR CUSTOMERS

BEFORE you offer credit to customers:

1. Ask for trade references to prove they pay their bills on time.
2. Request a deposit from new/risky customers.
3. Take note of your customer’s reputation in your industry.

OFFER TRADE DISCOUNTS

1. Customers are likely to pay in a timely manner if you offer trade discounts.  
2. Review what types of trade discounts are common in your industry and your size of business.

INVOICE IMMEDIATELY

Prompt invoicing improves:

1. Accuracy of invoice (you won’t forget details about work performed).
2. Probability and timeliness of receiving payment.
3. Demonstrates you run a functional, efficient business and improves your reputation for clear communication.

CAPTURE YOUR ACTUAL PRODUCT MARGIN

Include other direct costs in your gross margin calculation (in addition to cost of goods sold) so that you do not underprice your products and services.

Expenses that may be a direct costs for your business and affect your gross margin:

1.  Freight out (shipping products to customers).
2.  Direct labour.
3. Packaging and labelling.

Cash balances do not take care of themselves. Try to take at least a few minutes to determine if there are any small changes you can make to your operations that may add up to significant improvements in your cash flows and start there.