10 ways to improve small business cash flow.

Cash flow is the lifeblood of any small business. A healthy stream is essential if a business is to succeed. In general, the key is to accelerate the flow of money coming in and delay what goes out. Having written credit and collection policies can also help. Here are 10 tips a business can use to improve cash flow

[1] Establish sound credit practices. Before dealing with a new customer, always get at least three trade references and a bank reference. Credit reports, available from Dun and Bradstreet and others, report on a company's general financial health as well as how quickly--or slowly--it pays its bills. Never give credit until you are comfortable with a customer's ability to pay.

[2] Expedite fulfillment and shipping. Fill orders accurately and efficiently, and then use the quickest means available to deliver products or services to customers. Unnecessary delays can add days or weeks to customer payments.

[3] Bill promptly and accurately. The faster you mail an invoice, the faster you will be paid. Where possible, send an invoice with the order. If deliveries do not automatically trigger an invoice, establish a set billing schedule, preferably weekly. Check invoices for accuracy before mailing them. All invoices should include a payment due date. An invoice without payment terms may fall to the bottom of a customer's pile of bills.

[4] Offer discounts for prompt payment. Given an incentive, some customers will pay sooner rather than later. Trade discounts typically give 1% to 2% off the total amount due if customers pay in 10 days.

[5] Aggressively follow up on past due accounts. As soon as a bill becomes overdue, call the customer and ask when you can expect payment. Keep a record of the conversation and the customer's response. Set a follow-up date in the event the promised payment is not received. Ask delinquent customers with genuine financial problems to try to pay at least a small amount every week. When necessary, don't hesitate to seek professional help from an attorney or collection agency.

[6] Deposit payments promptly. Don't let checks sit in a drawer waiting to be deposited. The sooner you make a deposit, the sooner you can put the money to work for your business. If you are really serious about speeding up your cash flow, a post office box or bank lockbox can accelerate receipt of checks,

[7] Seek better payment terms from suppliers and banks. Better payment terms from suppliers are the simplest way to slow down a company's cash outflow. While most suppliers provide terms of 30 days, 60 or 90 days are sometimes available, though it might mean changing suppliers. Better credit terms translate into borrowing money interest-free. Some banks also may be willing to restructure business loans to make them easier to repay.

[8] Keep a tight control on inventory. Less cash tied up in inventory generally means better cash flow. While some suppliers offer deeper discounts on volume purchases, if inventory sits on the shelf too long, it ties up money that could be put to better use elsewhere.

[9] Review and reduce expenses. Take a critical look at all expenses. If you're not sure an expense is necessary, hold back until you are confident it will have a favorable impact on the bottom line. Consider ways to decrease operating costs, such as switching from a weekly to a biweekly payroll to reduce payroll processing costs. Be careful not to cut costs that could hurt profits. For instance, rather than cutting the marketing budget, redirect the money to areas where it have a more positive impact.

[10] Pay bills on time, but never before they are due. The basic rule is to take as long as you are allowed to pay bills--without incurring late fees or interest charges. Make an exception to this rule only when you are offered a trade discount for early payment.