5 Strategies for Effective Cash Management in MSMEs
Are you struggling to maintain a disciplined cash management system? Or just in general wonder often of the ways to boost cash availability in your routine operations?
Well then look no further. The key to good cash management is keeping yourself informed about the tools available to you. Having a thorough understanding of how your cash flows in your business and creating a budget to give you a healthy cash balance is of utmost importance. Below are the ways that teach you exactly that and much more.
So let’s dive right in!
- Collect Payments Quickly:
You can induce your customers by incentivizing them to pay early by offering discounts. Other techniques for collecting payments quickly include requiring deposits from your customers when taking orders and offering multiple payment options. Thanks to technology, there are many ways for your customers to complete quick and efficient transactions with your business.
2. Establish a Clear Credit Policy:
It is essential to be prudent when it comes to extending credit as a business in such uncertain times. The possibility of people defaulting on payments during this phase in the wake of covid 19 is alarmingly high. A non-paying customer can be a cause of heavy losses to an MSME owner, deteriorating the financial condition further. Establish a yardstick or impose a limit for restricting who is eligible for credit, and enforce these rules rigidly.
Also, be sure to do a background or profile check from credible sources for all new customers before extending credit to them. Monitor your accounts to identify late payers early on, so that you can red-flag them and structure a favorable deal already.
3. Finance Purchase Orders:
MSMEs are mostly involved in manufacturing which requires a lump sum of cash to fulfill the purchase orders, financing purchase orders could be a viable solution. Once you have a purchase order on hand, the financing company will pay the vendor so you can get the merchandise or inventory, the company needs to fulfill the purchase order. This eliminates the problem of getting a large order, but not being able to fulfill it because of cash to buy the inventory or materials.
4. Sell or Lease Idle Equipment:
Present times ask for both- Upgradation and Cost-cutting. Therefore, MSMEs under cash or credit constraints should opt for leasing the equipment to be able to spread out the costs over a set amount of time. And also selling equipment that is idle or leasing to another manufacturing unit is a good way to boost the cash flows. Optimizing equipment cost, that requires hard cost commitment upfront should be thoroughly thought of.
5. Align your Payroll with your Revenues:
Some businesses, like restaurants and retailers, generate daily revenue and are hence, better equipped to cover the expense needed for weekly payroll. For others, such as manufacturers, this could be a challenge, since the revenue flow occurs for them only after passing on the deliverables, therefore should either look for payments in installments that are favorable to both parties. You may benefit from paying employees from those amounts instead of exhausting your credit limit.
With this, it’s a wrap. Do let us know in the comments section below if this was educational and what ways you already use to optimize cash management for your MSME. And if you still feel any gaps in your strategy to be able to do effectively, contact us on +91–8882132258,+91 87500 00270, or drop a mail at firstname.lastname@example.org