Many small and medium sized businesses do not consider their cash flow needs until there’s a problem. If you’ve found yourself in a situation where you’re unsure if you can meet next week’s payroll or if you can afford to hire that employee or purchase that equipment, you should perform a cash flow analysis. Start taking steps to improve your cash position!

We’ve put together a list of five things that you can do this week to take control of your cash flow situation and improve your liquidity.

Figure out your current and future cash flow positions.

The first step of any good plan is to fully understand the situation. You’ll want to run a few reports (such as basic financial statements, including a Statement of Cash Flows, and A/R and A/P reports) in your accounting software to locate your largest cash flow blocks. Whether slow-churning payables or low sales are to blame, you’ll have a better understanding of your position and the specific areas to target to get back on track.

Run an Aging Report.

If you’ve determined that cash flow from receivables is an area of improvement, run an Aging Report to find any accounts that are 30/60/90 days past due. Once you have the report, do some investigation into the cause for the delayed payments. What you find may be surprising. Some companies find that their largest purchasers are the most past due, and others find that strict return policies hurt the collection process. Once you know the source of the late payment, you can reach out to request payment or revisit your policies.

Ask vendors to reschedule payment dates.

Check if your cash flow issues are due to the timing of collections and payments, such as collections due on the 15th and invoices due on the 10th. It can help to reschedule your payment dates. Talk to your vendors and find out if they would be willing to move the payment back until after your collection date, even if that means your bill will include an extra week of charges. Once you’ve received an influx of cash, the slightly higher bill shouldn’t be an issue and it should set you up for better cash flow in future months.

Convert items and excess capacity to cash.

If you find that you have high levels of inventory or excess capacity, you can improve cash flow by offering a discount in exchange for prompt payments. With high inventory levels, you can offer your best paying customers a discount on a bulk purchase if paid within a short time frame. Or, if your team has low utilization, you can offer discount services to select customers if the services are prepaid.

Check cost accounting metrics.

Cost accounting provides a wealth of internal metrics that can help you determine where cash is being spent and generated. Understanding more about your company’s internal processing times, required inputs to deliver products or services, and more can help you make strategic decisions about areas that you can cut costs and improve efficiencies.

Implement the suggestions above to see a quick improvement in your cash flow position. To further improve your results, implement a cash flow projection tool. We use a proprietary cash flow projection, budgeting, and analysis tool to help our clients visualize their cash flow future. With some strategy and planning, you’ll never have to worry about making payroll again.

Do you have any other tips that have helped you improve your cash flow position quickly? If so, contact us to let us know!