Improve Your Cash Flow with the Help of Business Credit

Money doesn’t usually flow into a business at the same rate it goes out – and, in most cases, that rate is constantly changing. Because of this, cash flow management can be hugely important to running a business. After all, you need cash on hand to meet payroll, maintain inventory, and pay for unexpected expenses. Knowing your customers’ business credit scores and ratings can help you anticipate when they’ll make payments Tweet This and can help you put credit policies in place to keep your business operating. In addition, paying attention to your own business credit can make it less expensive to borrow for short-term cash flow crunches. We’ve put together the infographic below to help you understand the basics of cash flow management.

How to Estimate Your Cash Flow Needs

Ask these questions when trying to understand your company’s cash flow requirements:

  • What are my fixed expenses?
  • What is the normal range of variable expenses?
  • When are customer payments due?
  • What is my current cash balance?
  • How much am I paying in credit card processing fees?

Manage Customer Credit to Keep Cash Flowing In

Sure, you want to make it easy for customers to do business with you, but you still need to get paid. Your business needs a credit policy that details when vendors receive credit and how they must pay you. Here are several questions business owners should ask themselves when establishing a trade credit policy:

  • How much credit will I extend?
  • How will I verify a customer’s creditworthiness?
  • When will payments be due?
  • Will I require a deposit?

Many business owners find that putting together an easy-to-read invoice can help them get paid on time. A basic invoice should include the amount due, the payment due date, acceptable methods of payment, and any late fees or early repayment discounts.

Cash Flow Management Tips

These simple suggestions can help get your cash flow management effort off the ground:

  1. See if you can change the due dates on your fixed expenses so you can pay them after you receive money from customers.
  2. Get your customers on automatic debit plans.
  3. Don’t wait – send invoices as soon as a job is done.
  4. Comparison shop for credit card processing services. Those that bill using interchange rates are generally the cheapest options.

Using Business Credit to Manage Your Cash Flow

Business credit scores and ratings can affect your ability to manage cash flow in several ways.

Accessing a line of credit is a common way to meet the short-term cash flow needs of a business. Vendors and financial institutions may check your business credit file to set interest rates and credit limits. You can monitor changes to your business credit file* by using CreditSignal®.

Your company can also check the business credit scores of partners in order to estimate who will pay early and who is likely to pay late.

Don’t Forget: Cash flow needs vary seasonally. Don’t assume that a good month represents a typical month.

Photo Credit: mrs.kristina, Twenty20