A business owner, probably have experienced the difficulties that many entrepreneurs face in raising a suitable amount of finance .It is a challenging process, which usually involves creating a long business plan . Maintaining finances and cash flows would be impossible if you are managing your credit policy and credit control in addition with the difficulties of late paying debtors.

Poor financial management is one of the major causes of the failure of small businesses. Many small firms go out of business because of inadequate working capital and poor cash flow management. Cash flow is the lifeblood of small businesses. Cash comes from sales, collections of account receivables, and the sale of assets. On the other hand, cash flows out to meet all expenses and debt obligations of the business. The goal of good cash flow management is to have enough cash on hand when you need it. Learning good cash flow techniques ensures that the company always has enough cash to meet its legal obligations. A shortage of cash flow could result in the loss of valuable trade discounts or, in extreme circumstances, financial embarrassment and bankruptcy.

Factoring provides an extremely quick form of finance that can help you to balance your cash flow or finance expansion, without the risk or hassle of a long term loan or other finance agreement. Factoring allows you to receive up to 90% of the value of an invoice instantly, with the remainder paid after the debt is collected. The speed of factoring makes it particularly useful to small businesses; and it is fast growing in popularity as more business owners see the benefits it can bring.

Although factoring has been traditionally seen as something for large businesses; small businesses are increasingly becoming aware of the benefits of a form of finance that is both quick and cheap, but without the risk that other forms of finance can carry. Your business can increase cash reserves in a number of ways.

1) Collecting receivables - Many small businesses can improve their cash position simply by making certain that their billing, collections, and payables systems are operating as efficiently as possible. Small businesses do not have the luxury of large accounting and collection departments of big corporations.

2) Tightening credit requirements - To improve your cash flow position, you can be more stringent in your credit and terms, requiring more customers to pay cash for their purchases. This will increase the cash on hand and reduce the bad-debt expense. Looser credit allows more customers the opportunity to purchase your products or services.

3) Increasing your sales - Increased sales would appear to increase cash flow. However, if large portions of your sales are made on credit, when sales increase, your accounts receivable too increase, and not your cash.

4) Managing Your Payables. A key strategy in cash flow management is to aim to bring cash into the company as quickly as possible, then hold onto your cash as long as possible by managing your payables.

Profits and a positive cash flow are key to the success of your business. Good cash flow planning takes three things into consideration: the amount of cash coming in, the amount of cash going out, and having cash when you need it. It too involves understanding your sales cycle, optimize your collection policy ,control your purchases, pace your payments ,plan your taxes and balance cash flow and profitability.

Top Tips for Improving Your Cash Flow

Budgeting and collecting are not glamorous but they are both key to having a successful business. There are several ways to improve the cash flow such as :

1. Stick to your budget - The budget is part of a business plan. Your cash flow projection coupled with your forecast will give you the proper timing for making purchases. The items you have budgeted for should also be part of the business plan.

2. Bill your clients regularly. Many business owners are so busy selling to new clients that they forget to invoice the clients they have already worked with.

3. Get a retainer for your services before you begin the work. If you are going to be working with a client over a period of time, you will want to request some money up front before you begin to deliver the service.

4. Give a discount for early payment. You will be able to collect the money more quickly if you offer a discount for prompt payment.

5. Accept a credit card for payment. Although you have to pay the credit card company for this service, having the convenience of a credit card allows the client to pay immediately.

6. Use your own credit card to finance purchases but do it cautiously. If the interest rate is low and you can pay the credit card company back relatively quickly, credit cards are often a good way to even out your cash flow.

7. Establish a line of credit with a bank. This is relatively easy to do so long as you have good credit and it gives you a cushion of cash when things are tight. Sometimes the bank will offer a really good rate to encourage you to become their customer for other banking services.