Two Ways Wise Cash Management Can Improve Profits.

This post is part of a series on a lack of working capital.

• Part one discussed how a lack of capital limits your sales.
• Part two covered how a lack of capital limits your hiring.
• Part three introduced wise cash management principles.

Two Ways Wise Cash Management Can Improve Profits.

I wrote the last post in this series about how good cash management practices can help a business increase it’s profits. Today we’ll look at two simple ways to increase your bottom line.

Eliminating Finance Charges

In Minnesota, where we are located, many businesses will charge 1.5% interest per month when an invoice becomes past due. This finance charge quickly eats into those newly negotiated price discounts. If a business has cash on hand instead of receivables and inventory, that cash can be used to pay vendors on time, saving on finance charges.

Establishing Business Credit

Similar to personal credit reports, there are also business credit reports showing a business’s payment history to its vendors and creditors. If you are a good paying customer, you should encourage your vendors to report their receivables to Dun & Bradstreet Business Credit[1], Experian Business Credit, or any of the other commercial credit bureaus [2] they may access.[3] For those businesses that aren’t paying promptly, if a business improves its cash position, it can makes itself more attractive to vendors so they will grant trade credit. Think of trade credit as an unsecured loan to a business. Access to trade credit allows a business to borrow money from its supplier, which is often interest-free if the bill is paid on time. Then the proceeds of the small business loan can be used to hire new people, invest in equipment, and put more dollars toward marketing the business.