While the financial health of your business isn’t solely determined by the amount of cash you have on hand, its availability is crucial for sustaining business operations. By improving a few operational processes, you can manage cash more easily and reduce the amount needed to operate your business. Here are a few tips to maximize your business’ cash flow efficiency:

1. Manage Your Inventory Strategically

Many businesses make the mistake of tying up their cash in inventory. By implementing a just-in-time inventory system or reducing the amount in stock you can lessen inventory holding costs.

One strategy is implementing a 10 percent inventory reduction, which can be accomplished by:

• Aligning your on-hand inventory with projected sales by evaluating current customer demand for each product.
• Optimizing your order cycles and quantities by taking advantage of beneficial pricing or reducing the amount of inventory stocked.
• Minimizing inventory by shipping slow-selling and expensive items directly from the manufacturer to the customer.
• Eliminating obsolete and slow-selling inventory.

By making these changes, you’ll reduce how long your product is in inventory, allowing you to allocate these savings to other operating expenses.

2. Collect Debts Sooner

Delayed payments are any business’ worst enemy. By decreasing your collection period (the time it takes to collect payments or debts) you can enjoy smoother cash flow. While managing your collection period may sound complicated, it can be as simple as ensuring invoices are sent correctly and promptly. 

Consider using electronic payment and billing systems to reduce mailing times, costs, and cheque float times. These systems also allow your business to process invoices promptly and shorten your collection period.

3. Negotiate Your Payment Terms

Did you know that you can negotiate payment terms with vendors and suppliers? Many of them even provide financial incentives or discounts for early payment. Make a point to negotiate your payment terms so they align with your collection terms and structure them to maximize discounts. Read more about payment terms and their importance on QuickBooks Canada’s blog.

Improving the operational efficiency of your small business can seem daunting, but implementing these simple changes will drastically improve your business operations.

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