The ultimate goals of a business are to be successful and sustainable. The right online payment processor, such as Payline, wants to help you achieve these goals. This just means having a great product and making profits, right? Simple enough, one would think, but it’s a little more complicated than that. More to consider here is the actual cash flow of your business, but be careful not to confuse its real meaning.
Cash flow cannot be mistaken for a profit, and likewise, profit cannot be called cash flow as there is a distinct difference. Cash flow is the money you need to make operations happen, or in other words, money that is constantly being transferred in and out of your business. This is the money that flows in from customers buying from your business, and then flows back out to use for the business expenses. These expenses range from materials and labor to create the product and paying companies that you outsource to for their help, such as an online payment processor.
Profit, or net income, is the amount of money remaining from sales revenue after all of the business expenses are subtracted. While making a profit is obviously very important to a business, a successful product that makes great money can still cause problems for you without a good cash flow. Overwhelming expenses can sometimes take too much of a profit, which can spell trouble for the future of your business. This is why knowing the distinction between cash flow and profit is essential, because keeping track of both is what will help the sustainability of your business.
Cash flow is somewhat of the lifeblood of a business, according to Huffington Post, so how do you go about sustaining it? Huffington Post and Inc. weigh in on some things you can do, several of which an online payment processor can assist with.
Take a Beat Before Taking Action: Have you ever heard the phrase, “If it’s not broken don’t fix it?” This applies to cash flow. Before you assume that your cash flow needs help, evaluate customer and supplier terms and map out a cash flow projection before rushing to repairs and improvements.
Decrease the Payment Wait Time: Once the order has gone through on your end, it is the customer’s turn to take their turn and pay. Take a look at your DSO, or “day sales outstanding” and see if there is a way to trim down the number of days available for customers to submit payment.
Shift Costs from Fixed to Variable: In order to boost your cash flow, look at what expenses can go from fixed to variable costs. Maybe fixed costs such as office supplies or backup product inventory can be switched to a less expensive variable cost based on how much of it is used regularly, and what is overstock that is gathering dust.
Process Payments Quicker: When drawing up agreements with clients, make sure to be clear about the timeline of processing client payments once they are collected. A good way to structure this is to require payment upon job completion, and be sure to organize a billing schedule to ensure punctual invoicing. This will also largely improve your customer service.
Prioritize Cash Flow Maintenance Company Wide: If one of your goals is to improve your company cash flow, make sure it is a team effort. All employees should be aware of any changes that may come about to achieve this goal, and be a part of that change.
Keeping a good cash flow is vitally important to the success of your business, and improvements on it need to be taken seriously. An online payment processor can help you keep track of improvements to your payment systems and more in order to keep you on track and your business moving up. Payline is ready to offer help with improving cash flow and all other payment processing needs, find out more here.
This piece was written by Lauren Minning, Content Specialist for Payline.