The lifeblood of business, cash flow management is concerned with tracking and coordinating expenses. Any issues on this front have the potential to disrupt daily operations and slow down growth. As a decision maker, it’s important to familiarize yourself with common cash flow issues that your business can face. This way, you can immediately identify these cash flow challenges as they take place and implement strategies to solve them before they escalate. Below are the most common cash flow challenges businesses face and practical solutions to address them.
Late Payments from Customers
When customers delay payments, it can create a ripple effect that disrupts your ability to cover operating expenses. This can keep you from accessing funds to pay suppliers or invest in growth opportunities. Businesses that rely on invoices with long payment terms are particularly vulnerable to this common cash flow issue. Knowing how prone your organization is to such an issue can be a boon, however, as it puts you in a position to do something about it.
Prevention is better than cure, and this rings true even for late payments. To encourage your customers to pay on or before the deadline, set clear payment terms from the start of the engagement and communicate them effectively. You can also incentivize prompt payments with discounts and use automated invoicing systems to send reminders once payment is due.
Unexpected Expenses
Cash flow issues can also stem from unplanned costs, such as emergency repairs, legal fees, or sudden supply shortages. Such needs can catch your business off guard and drain your cash reserves. To avoid such an event, it’s important to establish an emergency fund that will allow you to handle unexpected expenses without disrupting cash flow.
Another option would be to ensure access to a line of credit. Maya Business offers the best business loan in the Philippines in the form of Maya Flexi Loan. This versatile business banking loan offers up to PHP 2 million in extra capital that you can divide into several separate loans or use immediately. Should you come across an unexpected expense, you can use Maya Flexi Loan to resolve the issue or ensure seamless cash flow for your business despite the unforeseen spending.
Seasonal Revenue Fluctuations
Many businesses experience revenue peaks and troughs depending on the season. For instance, retail stores may thrive during holidays but struggle during quieter months. If the nature of your business makes it prone to such fluctuations, then you might find yourself short on cash during off-peak seasons, making it challenging to manage expenses.
You can use your awareness of these fluctuations to your advantage and prepare ahead of time. During peak seasons, make an effort to build a cash reserve that’s enough to cover the business’s off-peak expenses. You can use Maya Business Deposit to help you achieve this goal, as it offers the highest business deposit interest rate in the Philippines at 2.5% p.a. By integrating this deposit account into your saving strategy, you can achieve your goal amount faster and make your money work for your business.
High Overhead Costs
Overhead expenses, such as rent, utilities, and salaries, are fixed costs that can eat into your cash flow. When revenue dips or costs rise unexpectedly, high overheads can quickly strain your finances. Keep your overhead costs under control by regularly reviewing expenses with the intention of identifying areas for possible savings opportunities. For instance, if transfer fees are costing your business more than they should, consider using Maya as your primary business banking service provider and gaining the means to transfer funds to your suppliers and partners for free via PESONet and InstaPay.
Overstocked Inventory
Holding too much inventory ties up your cash and increases storage costs, especially if the products have a limited shelf life or risk becoming obsolete. Prevent such avoidable losses by streamlining your inventory management process. This can be achieved by investing in inventory management systems that track stock levels, which is crucial to steer clear of over-ordering. Another effective way of avoiding overstocking is to use sales data to forecast demand and align inventory with customer needs.
Underpricing Products or Services
Setting prices too low to attract customers can lead to cash flow problems, as the revenue you can earn from such a promotion may not be sufficient to cover costs or generate a profit. It’s best to aim for competitive pricing, and the key to getting the numbers right is conducting market research. Another strategy that can help you ensure profitability is to communicate the value of your products well to your target market to justify their higher princess. Review your pricing strategy regularly as well to account for rising costs or added value.
Cash flow challenges are inevitable in any business, but they’re not insurmountable. By understanding these common issues and implementing proactive solutions, you can maintain a healthy cash flow and ensure the stability of your business.
Include Maya Business’s Services to Your Strategies for Managing Cash Flow
Sign up for Maya Business so you can access effective business banking products and services that will enable you to manage your cash flow more effectively.
Setting up a Maya Business account lets you open a Maya Business Deposit account and use it as your settlement account. With an industry-leading 2.5% per annum interest rate, you’ll earn PHP 25,000 in interest per year on a PHP 1 million deposit. With a higher interest rate, you’ll be able to put together an emergency fund more quickly. Furthermore, you’ll be able to send money to your partners and suppliers for free via InstaPay and PESONet, letting you save more.
Signing up also qualifies you for a no-collateral Maya Flexi Loan offer of up to PHP 2 million in just 3 months, allowing you to have another funding source to maintain liquidity despite the presence of cash flow issues. Just use Maya as your primary processor for all wallet and card payments. The more you use our solutions, the better the loan offer will be.
