Having sufficient cash on hand to finance operations, pay debts and provide income to the owners is an ongoing struggle for most small businesses. But there are recommended strategies from a forensic accountant in Philadelphia that small businesses can employ to maximize cash flow.
“Cash flow problems can be challenging for even the most organized, savvy small business owners,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. “But there are definitely ways you can squeeze cash out of sales, assets and business debts to maximize your available cash.”
Consider these recommended strategies:
- Get cash up front from customers. Attorneys, consultants and others do it. You should too, especially if the sale is for services, if you have to purchase materials to fulfill the order, or if there is more than a month between the date the customer places an order and the product is delivered or service is completed, said Anderson, a forensic accounting expert in Philadelphia. Depending on the size and type of the order, you should ask for anywhere from 10% to 50% of the sales price up front, he said.
- Offer discounts for faster payment. Are you offering a small discount (1% or 2%) for payment within 10 days of the invoice date? If not, consider doing so, Anderson suggests, since the discount motivates customers to pay you quickly. Of course, you need to consider the impact of such discounts on your profitability and ensure that your sales price includes the impact of the discounts, he said.
- Accept credit card payments. Some customers may not have adequate cash in their bank account to pay quickly, but they do have business or personal credit cards they can use, said Anderson, a forensic accountant in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley. You’ll pay a small fee of about 3% to the credit card company, he said, but you’ll get paid faster by accepting credit card payments.
- Keep up on your past due accounts. How long do you let a customer’s account go past due before you pursue them for payment? The answer should be not at all, Anderson said. Consider establishing a policy of calling customers five days prior to the due date to remind them that the payment is coming due. And, wait no more than two days past the due date (allowing for the customer to have mailed the payment on the due date) to begin calling the customer, Anderson recommends. Remember, the squeaky wheel gets the oil, he said.
- Consider factoring your accounts receivable. If your industry has payment terms that extend beyond 30 days from the invoice date or if your sales are for relatively large amounts, consider selling your accounts receivable, or invoices, to a third party. By factoring your accounts receivable, your invoices are paid much faster, according to Anderson, a forensic accounting expert in Philadelphia. Remember to consider the cost of factoring and how it impacts upon your profitability since factors can charge a significant fee, he noted.
- Squeeze more cash out of your inventory. When was the last time your analyzed your inventory to determine if you have too much of certain items, have slow moving items, or have obsolete items? Consider discounting these items to turn them into cash, Anderson Or, you may prefer to sell slow-moving or obsolete items to liquidators or scrap dealers at drastically reduced prices. Sure, you won’t make much, if any, profit from selling these items (particularly the slow moving or obsolete items), but they aren’t producing cash if they’re just sitting on the shelf, he said.
- Squeeze cash out of older fixed assets. Most businesses have an inventory of retired fixed assets that aren’t being used and are just taking up space. Consider selling these assets to liquidators or scrap dealers, said Anderson, a forensic accountant in Philadelphia. You’ll free up space and maybe some cash, too
- Negotiate longer payment terms with vendors. Have you ever had a customer ask to stretch out his or her payment terms? You are a customer, too, Anderson reminds business owners. It never hurts to ask, particularly when you won’t get paid by your own customer for 30 or more days, he said. In that scenario, it’s likely your vendor will understand and allow you to stretch out your payments.
“These are just some of the strategies that you can use to increase your cash flow and make it easier to keep your business going, pay your debts and keep your own income consistent,” said Anderson, a forensic accounting expert in Philadelphia.
If you require the services of a forensic accountant in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support services, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.