How to Manage A Credit Line And Cash Flow

by Dawn Fotopulos on January 11, 2013

In our earlier article on how to manage a small business credit line, we gave you tips on how to use a credit line to improve your company's credit rating with the bank.

Here's how to make sure you're getting a return on investment when you use your credit line.

Using the money from a credit line from the bank should be used to drive revenues.

Use the credit line like an investment, not an expense.

One measure I use is, for every dollar I spend from a credit line, whatever I spend it on, must deliver at least five times its cost within six months or else I won't spend it.

Try to avoid using a credit line for cash flow because customers are not paying you.

You just need to do a better job of managing your accounts receivables.

Here's how to manage your accounts receivables:

Break up your invoices into smaller units to make it easier for customers to pay you.

Make a list of the top ten customers who owe you money. Then call the accounts payable clerk at those customers this week.

If you don't know their names, find out first and introduce yourself. Do this even if a big customer doesn't owe you money. The clerk will feel valued.

Call the clerk on Tuesday through Thursday. Mondays are usually too hectic and Fridays everyone's distracted before the weekend.

Remind the clerk that your invoice is due and ask if there is anything you can do to facilitate the payment process. Does cutting a check take longer than doing a wire transfer? Ask. You might get paid sooner.

Last, negotiate for partial payment if necessary. Get the cash from the customers instead of using your credit line.

It's a great discipline to learn anyway. Every small business owner should learn how to manage a credit line and cash flow. Your work isn't over after the job is finished.

Your job is over when the check clears!






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