Many businesses provide services and products to other business on credit. It means that these businesses may need specific tools that can boost the cashflow. As an example, funds should be made available immediately if invoices become due for payment. Specific products may need to be paid for pre-agreed percentage of the total value. This system will ensure that buyers will pay in full, because there are penalties and other consequences if buyers are unable to pay. There should be factors that can handle debt collection, maintain sales ledger and process sales invoices. These tools can become essential to make sure that our business could reach specific cash flow goals.
In order to improve cash flow, we should agree on the amount of money that should be paid by customers. In this case, we should take into account business factors. Usually, about 20 percent of the invoice value should be paid before the manufacturing process could start. The system should also include payment instructions, so customers or clients will know when and how they make subsequent payments. If clients agree to pay in a single payment, we should be ready to provide specific benefits. This will encourage customers to quickly pay, significantly increasing our overall cash flow.
We should also include various fees and charges, clients seek modifications to the products and services. This is important because any kind of modification and improvement will equal to additional efforts in our part. We need to calculate the outstanding funds each day and the information should be applied to our account each month. In this case, it would be much easier for us reclaim the total value of invoice for specific agreed timeframe. We should also take into account other factors, such as bad debts. Depending on the industry and business model, there could be increased requirements. The system will make it easier for us to take legal actions against non-paying clients.
Factoring should bring a significant positive in our cash flow. The most struggling businesses are those that are unable to maintain system that ensures higher cash flow. In some cases, we need to outsource the sales ledger processing and this can be a good idea if we have limited resources in our business. Cash flow improvement system should include features such as financial monitoring, financial reporting, customer vetting and others. This should help us to reduce administration and we should deal with different factors, whether it is positive or negative. Specific restrictions may need to be imposed if we want to deal customers on our behalf. Punitive charges could be needed to ensure that clients and customers will eventually pay in full.
Cash flow improvement tool should become our powerful strategic ally. It should be able to open doors to new opportunities and preferably potential clients. The tool could also increase credibility among third party organizations, including financiers and banks. Large amount of disputes and late payments could cause banks and investors to lose confidence in our ability to maintain healthy cashflow.