Recently we looked at 2 basic Cash Flow metrics every business owner should track.
Today, let’s take a look at how to improve those metrics. Here you will find actionable steps you can take to improve your Cash Flow, reduce your risk, and sustain long-term growth for your business.
Days sales outstanding (DSO)
DSO represents the time it takes to convert your credit sales into cash.
Can you maximize Cash Flow by reducing this conversion time?
Look at:
- Customer credit risk – perform background checks
- Customer payment terms – tighten terms or offer discounts on cash purchases
- Process to follow up with unpaid accounts – restrict customers with repeated payment delays to cash only
Days payable outstanding (DPO)
DPO represents the time you can wait before you have to pay your suppliers.
Can you maximize Cash Flow by increasing this amount of time?
Look at:
- Inventory management – avoid overstocking, understocking, or obsolescence
- Suppliers – negotiate better payment terms, extending due dates, installments
- Lowering purchase costs – review invoices for errors, avoid late fees, take advantage of discounts and incentives
Set up processes that allow you to take these actions regularly.
Make a maximizing Cash Flow a habit.