How to Enhance Cash Flow by Improving Terms with Vendors
It’s not uncommon for business owners to discover that, while they’re closing plenty of sales and their business looks great on paper, their cash reserves are practically nil. This is especially common among businesses that expand quickly, leaving them well-positioned in some regards but cash-poor overall.
Calculating your company’s operational cycle (the time period between the initial cash outlay and the receipt of payments) can help determine why cash flow is bad even when business is booming. And pursuing more favorable terms with buyers, sellers, and business partners can improve cash flow considerably, leaving the business in a much more nimble and strong position.
Start with Internal Partners
A good place to begin is with your internal partners. Make sure they’re on the same page about optimizing the cash cycle, particularly management team members.
Particular issues to discuss include the value of integrating financial projections, the merits of automating or outsourcing processes, and internal protocols for bridging cash flow gaps.
Revisit Vendor Relationships
Vendor and customer payment policies can have a huge impact on your operational cycle. As your business grows, your vendors may be willing to negotiate more favorable terms, simply in order to maintain your business.
Specifically, revisit the timing of payments as well as trade discounts and lines of credit.
Encourage Faster Payments
Finally, take steps to encourage your customers to make their payments more expediently. This might include offering discounts for quick payments. Accepting multiple types of payment, including credit and debit cards, can also be helpful.
While it’s critical to pursue better terms with your partners, there may be situations in which improved contracts aren’t enough. Financing can be a powerful tool to bridge gaps in your cash flow, especially during growth periods. Find out more by applying with BNC Finance.
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