Cashflow as the name suggests is the money running into a business and the amount of money running out. Cash is important to keep meeting your expenses, which is why it is a vital element to keep your business afloat.
Cash inflow happens from sources such as payment from customers, receipt of loan, investment from investors and later on outlayed to meet the expenses such as raw material and inventory costs, employee salaries, rents and other operational expenses.
Therefore, this helps us decipher how a positive cash flow is important for a business to run smoothly and a higher cash flow helps you create possible avenues for your business.
Let’s learn how payroll can help build a positive cash flow
The way you are handling your payroll services has a lot to do with the success of your business. An erroneous pay process might waive a red flag to your employees, clients and capitalists which is unhealthy for your organiations growth. Discussing few points to give you a better understanding on the do’s to keep the cash inflow of your business burgeoning.
- Encourage clients to pay their outstandings early :
Client’s who owe you money might be unwilling to pay off their debts quickly, which might trigger problems in your cash flow. Therefore, you may apply the following techniques to encourage them pay their outstandings, by
- Promptly issuing invoices and following them up regularly.
- Offering attractive early pay-off discounts.
- Charging an upfront deposit or scheduling pay deposits at regular intervals incase of long term projects.
- Maintain a separate cash reservoir :
At times, company might go through rough phases of their business life cycle, which is why maintaining a separate cash reservoir to meet the immediate cash flow needs for a duration of a few months or even a year during the lean times is essential.
Recent pandemic however has been the best example to prove the importance of the aforementioned necessity. We did witness companies adopting savage measures to cope up with the difficult times by furloughing, laying off, forcing unpaid leaves, etc for their inability to pay their employees. This has undoubtedly tarnished the company reputation to a great extent and removing such stains off their image might take ages. Would you ever prefer working for such a company in future? Your answer itself is self-explanatory for having such a reservoir handy.
- Opting for a short-term loan :
When the debtors stay unanswered to your calls for the delayed payments, you can apply for a short-term loan, to pay your employees accurately on the pay day’s. Money is a major motivation and people are the assets of a company, absence of money can result in loosing out on your valuable possessions which might cost you substantially.
- Encashing high-valued belongings :
If you donot want to opt for a loan, you can instead sell your not so important belongings and manage the money to meet your payroll needs at the moment. Selling out properties such as company stocks, vehicles, real estate, office equipments and other insignificant possessions can help you fix some of the current cash crunch issues. But these are just quick fixes and not a permanent solution and hence should be considered as a last resort because recouping of such assets in future might cost you heavily. Choosing wisely might help.
- Factoring your invoices :
When you are left with too many unpaid invoices, you can apply these techniques to make them take you more seriously.
- Keep frequenting notices to let them know that you are not letting the debt remain uncollected even if they have the capability to pay or not.
- Keep a lawyer who can mail legal notices for such heedless actions and also draw up a contractual agreement including remittances such as collection of a particular percentage of money on placing the order and the right to withold the delivery of the final product or services until the full and final settlement is made.
- Employ collection agencies to follow up with the debtors.
- Network with other business owners to gain insights on dealing with such business related matters.
- Cutting down on overhead expenses :
It is always advisable to prioritize your employees payroll instead of spending excessively on other irrelevant concerns. The expenditures made should be value for money and not just because everyone else is jumping on the band wagon.