What is one effective way to improve cash flow for a business?

Improving cash flow is crucial for a business's financial health, and tightening the credit policy is an effective strategy to achieve this. By tightening the credit policy, a business can ensure that it is more selective about the credit it extends to customers. This means evaluating the creditworthiness of customers more rigorously and possibly reducing the amount of credit offered or the length of payment terms.

When a business takes the initiative to tighten its credit policy, it minimizes the risk of bad debts and late payments, ensuring that cash is received more promptly. By receiving payments quicker and potentially reducing the number of customers who are able to purchase on credit, the business can improve its liquidity and have more cash on hand for operational needs, investments, and other expenditures.

Effective cash flow management is about timing the inflow and outflow of cash, and tightening credit can help streamline this process, contributing positively to the overall financial stability of the business. Reducing asset purchases may also contribute to cash flow improvement, but it does not directly address the timely collection of receivables, which is critical for maintaining healthy cash flow.