If the credit terms you have set your customers are out of sync with the credit terms set by your suppliers, negative cash flow can build up which will worsen over time.
For example, if your customers have 30 days to pay you but your suppliers want to be paid within 14 days then a cash flow problem may build up.
The best solution in this situation would be to renegotiate terms with your customers and/or suppliers. But sometimes this isn’t immediately possible. In cases like these, there are some measures that you can set in motion:
- Factoring: This is where a financial institution will lend your business short-term cash that is secured against the value of the invoices you have issued.
- Early settlement discounts: You could offer early settlement discounts on your invoices which will give your customers a financial incentive to pay you early. This is typically around a 2-3% reduction in the total invoice value.
This snippet is thanks to www.freshbooks.com: https://www.freshbooks.com/blog/6-ways-to-avoid-cash-flow-problems-in-your-business, and is written by Lee Murphy.
