Cash Flow Management

Even if your business is booming and sales are growing, you still might find hardship in paying off your debt. It may sound confusing as to how a growing business may be struggling but due to poor cash flow management trouble with paying your supplies, employees, as well as other third-party contractors, may arise.

Your books may tell you that you have sufficient amount of resources from your revenue to pay off your debts but you may not physically have the cash or bank balance to pay them off. This may be due to outstanding receivable or delays in receiving due amounts from your customers. The time difference between receiving money and pay it may cause your balance to be in the negative.

Cash Flow Management

If you are having trouble the managing the flows, it is advised that you prepare a cash flow statement according to your needs.

Cash flow measurement

You need to have a handle on the inflowing and outflowing cash payments. You need to keep a tight track of your due receivables and payables. For that purpose, you prepare a cash flow statement. The cash flow statement is not there to give you an idea of your future cash situation but rather an alert system that helps to wary of cash shortage. If you are having trouble the managing the flows, it is advised that you prepare a cash flow statement according to your needs. It may be for the whole year, half year, for the quarter, for the month or even if the situation requires it for the week.

To prepare the statement you will need information regarding your current cash reverses, sales of the period, the amount already received, the amount due and overdue. Also if you in process of arranging finances through other sources such as loans, overdraft etc. This will give an idea of the resources you have and the ones yet to be received. This will also enable you to ask a question such as when are we going to receive the dues, how much of it is going to be bad debts and what are your main inflows of cash.

The second part is planning and tracking the outflows of cash. You’ll have some mainstream payments that you have to make monthly while others might not be that frequent. Always make sure you have set aside resources/cash to pay off the significant and monthly payments. Keep a track of discounts that can be availed through timely payments.

Fast-tracking receivables and organising payments.

Receiving payments at the same time of sales it the dream come true. But unfortunately, that is not the case in every situation. Trade is done on credit system and you need to wait for the payments. But that does not mean you have to just sit and wait for them to pay, thinking it is not in your hands. You can always fast track receivables by offering discounts, maintaining good relations with customers who make timely payments. Ask for deposits at the time when the purchase order is made.

Do, extensive credits check for your entire customer base. Discourage customers who make late payment by introducing cash at delivery policies or interest on late payments. You can also sell receivable to financing and other debt collection agencies but at a cost of your sales. Try to offer improvement suggestion to customers whom business cost is more than average. A smooth flow of generating and sending invoices.

While you need to improve your inflows, it is also necessary to manage your payments at the same time. You do not need to make early payments. Try to avail the entire credit term period and priorities payments. If you are offered a discount of early payment and you are able to avail it without occurring cost or making your payments overdue, you should avail it but always be careful about the details. If you not able to pay early do not be tempted by the offer. Create a good reputation with your suppliers, so at times of financial crisis, they will give you leeway. The lowest price might not always be beneficial in some cases as the credit terms might have better effects on your overall cash situation.


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Plan for a shortfall

The cash flow, if done properly will alert of a situation where you are short on cash. Sometimes situations like these are unavoidable and you might find yourself in this situation one day. Try and procure resources in advance and not wait for the last moment, so you can operate and plan the payment of the loans and keeping a good credit history with the financial institutions.

Your other option is communicating with your suppliers as if you go out of business they’ll lose their sales and it will affect them. It is in their interest to keep you in the run rather than go bankrupt. Ask for early payments from your best customers and offer discounts. Go after the over dues and as a last resort sell those due to debt collectors.

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