Cashflow Management


How to Better Manage Your Cash Flow

These four steps will help you keep track of the money pouring in and out of your expanding firm.

Cash is king when it comes to the financial management of a developing firm. The gap between the time you have to pay your suppliers and staff and the time you collect from your customers is the issue, and the solution is cash flow management. At its simplest, cash flow management involves deferring outlays of cash as long as possible while pushing anybody who owes you money to pay it as fast as feasible.

Measuring Cash Flow

Understand that cash flow plans are not visions into the future. They’re informed predictions that balance a lot of criteria, including your clients’ payment history, your own diligence at anticipating anticipated spending, and your suppliers’ patience. 

Start your cash flow prediction by adding cash on hand at the beginning of the term with additional cash to be received from other sources. In the process, you will end up acquiring information from salesmen, service reps, collections, credit workers and your finance department. In all circumstances, you’ll be asking the same question: How much cash in the form of customer payments, interest profits, service fees, partial recoveries of bad debts, and other sources are we going to receive in, and when?

The second aspect of developing accurate cash flow estimates is precise information of quantities and dates of expected cash outlays. That involves not just knowing when each cent will be spent, but on what.

Improving Receivables

If you were paid for sales the minute you produced them, you would never have a cash flow issue. Unfortunately, it doesn’t happen, but you may still increase your cash flow by controlling your receivables. The main concept is to enhance the speed with which you transfer inputs and supplies into goods, inventories into receivables, and receivables into cash. Here are particular strategies for achieving this:

1. Offer incentives to clients who pay their bills fast.

2. Ask clients to submit deposit payments at the time orders are accepted.

3. All new non-cash customers should be subjected to a credit check.

4. Get rid of old, obsolete merchandise for whatever you can get.

5. Issue bills quickly and follow up swiftly if payments are sluggish in arriving.

6. Track accounts receivable to discover and prevent slow-paying consumers. Instead of refusing to do business with slow-paying customers, consider implementing a cash-on-delivery (c.o.d.) policy.

Managing Payables

Top-line sales growth may mask a lot of problems-sometimes too effectively. When you are operating a developing firm, you have to control spending carefully. Increased sales should not lead to complacency. Any time and any place you observe expenditures increasing faster than revenue, review costs closely to discover opportunities to minimize or manage them. Here are some additional strategies for spending cash wisely:

1. Take maximum use of creditor payment arrangements. Don’t pay a bill in 15 days if it’s due in 30 days.

2. Use electronic money transfer to make payments on the final day they are due. You will stay current with suppliers while maintaining usage of your cash as long as feasible.

3. Communicate with your vendors so they know your financial status. If you ever need to postpone a payment, you’ll need their trust and understanding.

4. Carefully investigate merchants’ promises of discounts for early payments. These may equate to pricey loans to your suppliers, or they may present you with a change to cut total prices. 

5. Don’t always concentrate on the lowest price when picking vendors. Sometimes more flexible payment arrangements might boost your cash flow more than a bargain-basement pricing.

Surviving Shortfalls

Sooner or later, you will anticipate or find yourself in a circumstance where you lack the funds to pay your payments. This doesn’t imply you’re a failure as a businessperson – you’re a typical entrepreneur who can’t precisely forecast the future. And there are typical, daily business procedures that might assist you manage the gap.

The key to handling financial deficits is to become aware of the situation as early and as precisely as possible. Banks are suspicious of borrowers who have to have money now. They’d rather prefer loan to you before you need money, ideally months before. When the reason you are caught short is because you failed to prepare, a lender is not going to be particularly interested in bailing you out.

If you believe from the outset that you will eventually be short on cash, you may apply for a line of credit at your bank. This enables you to borrow money up to a predefined limit every time you need it. Since it’s significantly simpler to borrow when you don’t need it, organizing a credit line before you are short is crucial.

If lenders won’t assist, turn next to your suppliers. These folks are more concerned in keeping you running than a banker, and they probably know more about your firm. You may frequently secure longer terms from suppliers that equate to a big, low-cost loan simply by asking. That’s particularly true if you’ve been a good client in the past and kept them updated about your financial condition.

Consider utilizing factors. These are financial service providers that can pay you today for receivables you may not otherwise be able to collect on for weeks or months. You’ll get as much as 15 percent less than you would otherwise, because factors require a discount, but you’ll remove the headache of collecting and be able to support present operations without taking out a loan.

Ask your greatest customers to speed payments. Explain the circumstances and, if required, provide a reduction of a percentage point or two off the amount. You should also go after your worst customers-those whose bills are more than 90 days past due. Offer them a higher discount if they pay now.

You may be able to obtain cash by selling and leasing back assets like as machinery, equipment, computers, phone systems and even office furniture. Leasing businesses may be willing to undertake the transactions. It’s not inexpensive, though, and you may lose your valuables if you skip lease payments.

Choose the bills you’ll pay with care. Don’t only pay the lowest-paid employees and ignore the rest.  Ask the rest whether you may skip a payment or make a reduced payments. 

Instead of refusing to do business with slow-paying customers, consider implementing a cash-on-delivery (c.o.d.) policy.