How to increase cash flow and reduce debt
Having a good, positive cash flow is vital for any business. In fact, many companies, even those that are only marginally financially viable, can remain in business for years, as long as they are in control of their cash flow.
Even companies that are running at a loss can carry on trading as long as their flow of incoming cash is enough to support ongoing trading.
So, cash flow is a vital part of any business’s ongoing trading status. Credit control is another key element. Many companies will take as long as they possibly can before settling outstanding bills. The length of credit a company can agree with its trading partners is crucial; sometimes even more so than buying from the cheapest supplier.
Hardly anybody now pays bills on a net 30-day basis. The majority of businesses will negotiate extended credit terms before beginning trading; 45 days, 60 days, and even 90 days are not uncommon.
Policing cash flow forecasts
Sound financial management takes this into account when creating cash flow forecasts, along with when they expect to be paid themselves. If the credit-control people can stay on top, ensuring that payments and receipts are made on agreed time limits, all will usually be well, as long as the business is trading profitably.
But even profitable businesses can land themselves in deep water if their cash receipts are not made to schedule. If the bank is empty or they are at the edge of their overdraft limits, they cannot pay suppliers and business will grind to a halt. It can even be responsible for the company failing.
The importance of effective credit control
The job of credit control, or the business owner in a small business scenario, is to increase cash flow, to speed up the incomings and try to ensure they outweigh the outgoings. If successful, this has two effects. In the first place, it ensures that the company can continue to trade. But just as importantly, in the second instance, it means that the outstanding debt situation is continually being reduced.
Reducing debt will not only facilitate better profits in the short term, in the long term it also reduces the likelihood of a business going under through the pressure. It perhaps even negates the chance of any legal action being taken by creditors. In other words, increasing cash flow and thereby reducing debt will provide a much healthier trading situation.
Make sure your business has enough oxygen – contact First Capitol Collections today
If you are experiencing problems with debt collection, it could be that you need the help of a professional debt collection agency. Why not call us here at First Capitol Collections, today, on 03333 444991. Remember – increasing your cash flow provides your business with oxygen – without it, you can’t breathe.