Friday, September 16, 2016

How Net 30 Accounts Help Conserve Business Cash Flow

For every business, the cash flowing into a company is essential for covering the day to day expenses necessary to operate a business. It keeps lights on and doors open; cash flow is truly the life blood of a business. Unfortunately, it’s not uncommon that companies of all shapes and sizes have to slow business growth due to lack of cash flow needed for expansion.
To combat this, a business owner may increase the amount of cash coming in by generating more sales and converting those sales into cash as soon as possible. Another way is to conserve the company’s cash flow.
While there are many ways to conserve cash flow such as cutting costs, bartering, re-negotiating with creditors, and cutting inventory; one method in particular is through Net 30 accounts.
By asking for credit terms from your suppliers you enable your business to hold onto cash for a longer period of time. You can obtain products and services your business needs and defer the payment on those purchases for 30 days, thereby conserving cash flow.
This is called a “Net 30 account”.
The fact is the wait between the time you have to pay your suppliers and the time you collect from your customers is the challenge facing many businesses today. It’s all about proper cash flow management. With net 30 accounts you delay when your cash goes out (30 or more days), at the same time you should focus on improving the speed at which your customers pay (receivables into cash).
Several ways to improve your receivables include but are not limited to the following:
  • Require customers to complete a business credit application
  • Offer discounts to customers who pay fast and early
  • Require a minimum deposit with every purchase
  • Issue invoices immediately and have a follow up system for collecting
  • For slow paying customers implement a policy of cash on delivery
  • Extend credit terms to customers who pass your business credit approval process

Keeping cash in your business bank account using credit terms such as net 30 accounts is often overlooked by many business owners. Most businesses focus on accounts receivables while missing out optimizing accounts payable.  Keep in mind, establishing net 30 payment terms with suppliers is just the beginning.
The longer the term, the more time you have to pay and keep cash in your bank account. Negotiate the longest payback terms possible such as net 45, net 60 or even net 90 days. Many suppliers will even offer you discounts for early payments which improves your company’s bottom line.
If you can’t obtain better terms than net 30, consider paying your invoices with abusiness credit card. This provides your company additional time to conserve cash but be sure to pay your balance in full when the statement becomes due to avoid any interest charges.
One other creative way to conserve cash is if a supplier or vendor delivers a product on consignment, only requiring payment when the product is actually sold. If your business has the opportunity to obtain this type of arrangement, it provides a great way to conserve your cash. 
With better cash flow, a business owner will position the company to achieve success by having the cash available to operate and grow the business. If you’re experiencing cash-flow problems or want to maximize your cash on hand, consider using net 30 accounts as one of the proven ways to conserve your company’s cash flow.

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