The ability to generate positive cash flow on an ongoing basis indicates that a company’s liquidity position is improving, enabling them to meet obligations as they become due, expand its business operations and make distributions to shareholders and investors. These all translate to fiscal stability, growth and future success.

Below are 8 tips a company can implement to boost its cash flow:

  1. Explore ways to shorten customer payment terms. For eg. offering discounts and other incentives for early payment. A 2 day reduction in receivable days for just a few larger customers could have a significant positive impact on cash flow.

  2. Send out clear and customer invoices on a timely basis. This ensures more timely payment, which improves cash flow. Invoices should be easy to read with the due date included in multiple locations(ideally in bold). Include clear instructions regarding payment types accepted. If a charge is made for late payments, this should also be included. These are all measures aimed at minimizing delays in customer payments.

  3. Conduct credit worthiness checks on new customers to minimize the risk of non payment, which has a negative impact on cash flow.

  4. Set upfront clear payment terms for your customers, so they are fully aware of when payment is due. In addition, you could send automated reminders of upcoming payments due. This ensures that customer payments are made by the due date.

  5. To the extent possible, consider implementing a Just-in Time inventory management system, in which materials are received from vendors only as needed for production, minimizing the amount of cash tied up in inventory and reducing storage costs. This allows the company to generate more positive cash flows.

  6. Seek to negotiate longer payment terms with vendors, without damaging your relationship with them. An increase in days payable outstanding(DPO) can have a major positive effect on cash flow. The days payable outstanding should never be less than the days sales outstanding. In other words, a business should never be paying vendors quicker than they are collecting on outstanding receivables. That creates a recipe for cash flow challenges.

  7. As part of the payment terms agreed with customers, request a deposit or retainer payment. This minimizes the risk of non-payment and improves cashflow.

  8. Increase your prices periodically. If it has been a few years since you have increased the prices of your services or products, or if your prices are below the competition, it may be time to increase your prices, especially if you are offering a great product or service to your customers.