How To Better Your Cash Flows?

Cash Flow has a major role in the success of business. Even successful businesses run into difficulty because of the negative cash flow. For a set business where there are no cash reserves and the payment get delayed, it can often mean question of life & death. Many businesses suffer despite having hefty receivables. The problem is that though the receivables are very high, there is no cash in hand to give it to suppliers and supply stops. The stopped supply can derail your production and thus your business.

The cash flow utilization can often be seen in Air Flights industry. Right now Vistara was offering great discounts for flights booked till Jan 15, 2017 for travel after May 2017. The discounts were heavy, but the more the tickets get booked during this period, the more money Vistara gets to use. Of course, here it may not have cash flow in mind. But you can use such strategies if it is possible for you. For example, you can given an offer like Big Bazaar gives. 'Make an upfront payment of Rs. 10000/- and buy anything worth Rs. 12000/- till the end of the year.' You may also keep things like Maximum 2000 spend per month. Or the like. This not only generates positive cash flow but also keeps the customers loyal through commitment. 

The best example was seen during the period of Mr. Laloo Prasad Yadav, the railway minister. Till then and even after that, Railways reported losses. But during his period, the railways reported turnaround. He had increased the number of days before which a reservation can be done. Instead of the regular 90 days, he made it 120 days (I do not remember the exact number, but 30 days were increased). This makes two things. First Railways get money to use. It does not necessarily take loans or debt. If it has revenues of Rs. 50 Crores per month, then by increasing 30 days reservation, it can increase positive cash to use worth around Rs. 30 to 40 crores.

To keep proper cash flows, you need to keep list of receivables and remind your customers about payments. Often there might not be a payment problem, but since you are not crying you do not get it. Or mere reminding about payments repeatedly might get you payment even if there are problems. In general, if there is no organized payment, payments are made to the supplier who is more vocal about asking payment. 

If the market is indeed slow, payments might get slow. Accordingly, you need to adjust those payments to your creditors.Having a month or two cash flow position might help you in predicting problems.

You can also give discounts on immediate payments. These discounts help in generating more business by utilizing the same money again and again. The more you roll, the more you generate.