There are several options for increasing cash reserves:
- Collect payments as quickly as possible: Accounts receivable can be a key to your success. If you are not aggressive with collection, profits practically disappear.
- Develop strict credit standards: Consider the possible short term benefits of tighter credit and terms, forcing more clients to pay cash. It can lead to more cash on hand for you, and decreases any bad-debt expense. However, this strategy may not be as beneficial for long term use. Looser credit policies enable more clients to buy, and conversely, tighter credit policies may hurt your sales overall.
- Stay keenly aware of the market: One common strategy used by small businesses is to price their products a little lower than the market. While this sometimes gives you a competitive advantage, it often results in failing to make a profit. Instead, do research on your product’s market, distribution costs and competition before developing your prices. Then make sure you keep up with all elements in the market that play a role on pricing and costs, and be quick to make adjustments when necessary.
- Take care of your cash flow shortages with short-term loans: Typical types of loans used for cash flow issues include revolving credit lines and equity loans.
- Increase sales: A great way to increase cash flow is to increase sales. But there’s a downside to growing too fast in that when you quickly increase credit sales, accounts receivable goes up too, but not cash on hand. If not properly planned, this can cause quality or customer service problems if you can’t also meet the increased demand. This scenario can also diminish the company’s cash reserves quickly.
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