Steps That Can Make a Difference When a small business is having problems with cash flow, borrowing money isn’t the only solution. Instead, what’s frequently called for is better cash management. Here are some pointers.

Purchasing.

Instead of buying supplies all at once, buy smaller quantities more frequently. Buy in bulk only if offered a significant price break.

Negotiate the best possible payment terms with vendors. Pay bills on time, but don’t pay early unless offered a discount for prompt payment. Passing up a discount can be costly. For example, with payment terms of “2/10, net 30,” failing to take the 2% discount offered for paying the bill 20 days early is equivalent to obtaining financing at an annual rate of over 36%.

Getting paid.

To help speed up receipts, put the same concept to work by offering customers a discount for paying their invoices early. If that isn’t successful, charge an extra percentage on past-due invoices. And send bills promptly. Instead of waiting for a 30-day billing cycle, bill customers immediately after the goods ship or services are delivered. Consider switching perennially slow-paying customers to COD.

Managing inventory.

Generate cash by getting rid of slow-moving inventory. Return the items where possible and come up with a plan to move the rest, even if it means marking down the items substantially. For new purchases, avoid overstocking by carefully planning the quantities that need to be kept on hand.

Trimming spending.

Review operating expenses to make sure they are necessary. Look for ways to cut costs by shopping for better rates on insurance, telecommunications, and other overhead items.

Controlling taxes.

Take advantage of opportunities to reduce taxes. For example, make planned equipment purchases before year-end if the business will be able to write off the cost on this year’s tax return. Or consider setting up a tax-deferred retirement plan to benefit owners and eligible employees.

Forecasting and budgeting.