The Do’s and Don’ts of Managing Cash Flow Challenges

Cash flow challenges are every company’s worst nightmare. In this blog, we’ll go over some do’s and don’ts of cash flow management.

Don’t: borrow at high rates 

We’ll start here because it’s probably the most important issue at hand. Some companies will try to exploit you in your time of need. According to this Business Insider article you should never accept these loans:

“These kinds of loans can sometimes exacerbate a cash flow problem because, while it has plugged the cash gap, the higher interest rates and on-going costs can create a bigger hole down the road. In a worst-case scenario, a small business is unable to meet repayment, defaults, and its credit history is seriously damaged. These loans are a band-aid solution at best, and a better option is to invest time and money into collecting overdue payments.”

Unless the rates are low and you know what you’re doing, this strategy will probably just exacerbate the problem. Be warned of loan sharks.

Do: Send invoices quickly

Be the business that sends an invoice as quickly as possible. Don’t let weeks go by without sending an invoice.

Do: Collect your receivables

Some businesses think they’re making money because they’re making sales, but never collect the receivables. Make sure your customers are paying on time.

Do: Include more payment options

Not all late-payers are inherently bad. Some just don’t know how they’re supposed to pay. You can solve this problem by adding more payment options. For example, let customers pay with credit card.

Don’t: Wait for the problem to go away 

Cash flow problems rarely solve themselves. If you wait too long, you can find yourself in a dire situation where you feel the pressure to borrow money.

You can avoid this altogether by collecting your money on time. But if you wait too long, then you’ll need to speak with business advisors as soon as possible.

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