Here are some strategies that I suggest that may help you improve your company’s cash flow:
- Analyze the cash flow, prepare a budget, and then synchronize cash inflows with cash outflows.
- Include capital expenditure (major physical asset acquisitions such as equipment and buildings) and their associated periodic payments, insurance, and maintenance costs in the budget.
- Implement credit policies that weed out customers who will either pay slow or who may not pay at all.
- Make routine collections calls (i.e., the squeaky wheel often gets the grease).
- Take advantage of vendor discounts.
- Maintain as small an inventory as possible.
- Slow down your firm’s payments to vendors (within reason).
If you do choose to slow down payments to vendors, you may want to think about communicating with them that you will be paying slower than expected. As a CFO and now as an entrepreneurial CPA firm owner, I am generally open to working with customers who proactively communicate with me that they are having cash flow issues. If you choose this strategy, it is important to either pay a little at a time or meet the estimated time of payment you give the vendor. Trust in a relationship can be broken quickly if you don't fulfill your commitments and the vendor will likely cut you off if you don't do make a payment when you say you will.