Cash Flow Suggestions
If you're trying to improve your odds of getting a business loan, we suggest you review the following practices of your business:
- Pay off, or delay paying, debt. If possible, pay off existing debt or refinance the debt for a longer maturity with lower payments. For other debts, try to renegotiate payment lengths; some creditors may allow some delinquencies as long as some money is coming in. In some situations, you may simply have to prioritize those creditors who must be paid because they are providing necessities, e.g., utilities, certain suppliers, payroll, etc., and try to delay payments to creditors who are less likely to halt your business, e.g., secondary suppliers.
- Collect receivables. Try to quickly collect overdue accounts. Revenues are lost when a firm's collection policies are not aggressive. The longer your customer's balance remains unpaid, the less likely it is that you will receive full payment.
- Reduce credit allowances and accelerate cash receipts. If you can tighten credit terms without losing good customers, you can increase available cash on hand and reduce the bad debt expense. You can also encourage cash sales through discounting and pricing policies. In addition, try to reduce the float time on customer payment checks. You can do this by undertaking prompt processing of checks as you receive them (or using a bank lockbox arrangement in which you pay a fee for the bank to collect and process all incoming payments), and by shopping for a bank that quickly processes negotiable instruments.
- Increase revenues. While this suggestion is an obvious goal of every business, a poor cash flow may indicate that you need to seriously reconsider what steps you can take to increase sales revenues by either raising sales volume and/or altering prices. In reviewing ways to increase cash flow through increased sales, guard against allowing too many credit purchases; extending credit will increase your accounts receivable, not your cash.
- Reduce inventory. If you can reduce the amount of inventory you maintain, your cash outflow should decrease.
- Review tax strategies that may help cash flow with your accountant. For instance, a tax credit may be available for job opportunities you create for certain disadvantaged employees, "qualified research" (research and development) costs, or the expenses of property renovation or rehabilitation of certain qualified buildings. In addition, accelerated depreciation on certain equipment and tangible property may be available to increase your short-term tax deductions.
For more ideas on this subject, see our detailed discussion of improving your cash flow.