Managing the company’s liquidity

Experienced entrepreneurs are keen on keeping track of their cash flow and place a great importance on monitoring monthly and even weekly financial statements. These statements provide an overview of revenues and expenses, whether the company is earning more money than it is spending, and whether the cash flow turned negative, giving them the ability to make the right decisions at the appropriate time.

Other entrepreneurs, however, fail to manage their cash flows and, as a result, find themselves in financial difficulty as a result of the late receipt of outstanding payments, inability to meet the needs of their staff. Often, they end up paying large amounts from their personal accounts to cover this deficit.

However, this is not the solution. Cash flow is key to all businesses and should be managed at an early stage. If you fail to properly manage your cash flow within the first year of your project, your business will not survive in the second year.

To help you understand this process, and implement it correctly and in a timely manner, here follows some expert tips:

Accurate projections are key

Forecasting cash flows is still considered an important tool when it comes to providing information to any company in terms of distribution channels and represents a basis for other decisions. Therefore, it is important to analyze and take into consideration the repayment history of customers.

Identify both customers who pay on time and those who are less committed to paying their obligations before deciding to provide incentives to speed up payments. Experts advise caution when you set your cash flow expectations based on which you are going to make a promise to pay back your suppliers. You will find yourself in an awkward position if you cannot make a payment to a supplier or request a discount on prepayment because your cash flow projections were wrong.

Make sure your cash flow projections are accurate. This way you can identify your problems, and you can be proactive in finding a solution by trying to secure cash early.

Identify the sales cycle

It is essential to understand how the product works and its sales cycle. Also, make sure to evaluate sales data on a weekly rather than monthly basis. Pay sufficient attention to the time and shipping periods. If you are in the distribution business, be sure to set a time period between ordering products and accessing your own warehouse.

Follow up on market developments

Good price management relies primarily on market information. You have to be aware of what your competitors are doing, and the latest market deals, because your customers will discuss these deals with you later. This, however, does not mean you should always offer the lowest price. Sometimes, a company engages in a deal because it is getting rid of excess stock in a rush to secure cash.

At this point, you have to make a rational decision as to whether you want to keep up with these prices or allow the deal to conclude and wait until your inventory has run out and sell at regular prices within a week.

Understanding potential delays

Delays in the business cycle are inevitable; delays can occur in the product order cycle or the sales cycle because you lack enough products in your inventory to supply your customers. Until you can complete a sale, you cannot secure cash for it, which will result in a delay in collection. All these factors affect your cash flow but should not be used to justify problems.

Experts say you need to understand these factors and why delays can occur, and then develop contingency plans to deal with these situations. Although most entrepreneurs respond to business challenges by looking for short-term solutions, you need to take proactive action in your business plan to respond to potential situations.

Building communication bridges with manufacturing companies

Obviously, manufacturers want you to sell the largest quantity of their products, but it is also in their interest that you succeed in selling them at a profit.

Be sure to build an open and honest relationship with these companies, so they understand the challenges you face in the market.

Experts say you will create more opportunities and overcome challenges if you can develop a strong multi-level relationship with manufacturing companies. This will allow you to better under their business operations, sales cycles and product lineup.

Beware of the risks of price cuts

Most companies seek to increase sales as the first solution to address their cash flow problems. But other reliable methods exist to quickly raise money if the company’s products are on demand. These include product packages, special incentives or direct price reductions. Experts, however, caution that success depends on understanding the repercussions of price cuts.

Your liquidity crisis may be very damaging and may force you to incur significant losses to secure cash and later profits in a bid to maintain business operations. Therefore, you should consider all aspects and ask yourself the following questions?

How much loss can I incur? How long can I sustain this price reduction to secure liquidity? What problems could this lack of liquidity have?

Collect your owed money

Experts say companies should not hesitate to seek payments from their customers if the delay in payments is not justified. Therefore, you should contact these companies to collect due payments. If the delay is not justified, you can decide whether to continue dealing with this customer or not.

Address the reasons behind the delay in payments

If the delay in payments is justified, you’ll need to address the reasons behind this delay as soon as possible. Experts say the most common problem in the Middle East is that sales are invoiced-based rather than based on a prior agreement (for instance, a 30-day purchase bill is paid weekly), which means that companies will not start following up on payment until the payment deadline is due. This is usually cited by customers as a justification for delayed payments.

Therefore, experts advise debt collection officers to contact customers at least two weeks before the due date to allow time for any inquiries. Alternatively, cash discounts can be provided to encourage immediate payment.

Transparency and honesty is the best policy

If you are having trouble collecting cash from customers, see if you can agree with the suppliers to extend repayment periods or seek a short-term loan from the bank. But make sure to cautiously manage your cash flow because recurring delays or failure to pay in a timely manner will cast doubt on the credibility of the company in the market.

Therefore, it is essential to be transparent with stakeholders and to identify the challenges that you face in managing cash flow. Be honest and cooperative with creditors companies because it is in their interest that you remain in business. A lack of confidence in your ability to pay your creditors will have a negative impact on your business.

Reward employees to motivate them

Ensure that employees across different departments are offered incentives for good performance and behavior.

Do not only hire a sales team to sell products and earn revenue. Make sure you evaluate their business based on the company’s profitability, and their understanding of payment terms.

Make sure that the assessment of product managers depends on inventory levels, and assess the performance of collection officers on the basis of collected payments. Think about linking drivers’ bonuses to delivery on time, because making customers happy will encourage them to pay later.

Experts also stress that staff bonuses should be related to their performance whether it is receptionist, the debt collection officer, credit facility offer and product and sales managers.

Always remember that financial returns invite pride, but cash is key to continuity