When it comes to financial management, cash is the key to a growing company’s success. Cash flow management reduces the time it takes to pay suppliers and employees and allows customers to collect. In its most basic form, cash flow management is delaying the payment of cash and encouraging people who owe money to pay it as soon as they can.
You measure Cash Flow Prepare cash flow projections next year, next quarterly, and next week if things are not going well. You can be changed to problems early on by a precise cash flow projection.
Cash flow plans do not give a glimpse into the future. These are educated guesses. Be careful not to assume without reason that receivables continue to flow at the same rate as in the past. Make sure you include expenses such as loan interest and principal payments and account for seasonal sales fluctuations.
You can start your cash flow projection by adding cash at the beginning of each period, along with any money received from other sources. This will allow you to collect information from collections personnel, sales representatives, service workers, credit workers, finance staff, and others. You will ask the same question in each case: How much cash are we going in as customer payments, interest earnings, or service fees?
To make accurate cash flow projections, you need to have a detailed understanding of future cash outlays and the amounts they will be made. It is essential to know how each penny will go and when it will be spent. Every significant outlay should be included in your projection.
An accountant, Steve Mayer, said that while it can be difficult for business owners to prepare projections, it is one of the most critical tasks. Projections are the next most important thing a business should do to plan for the future.
Enhancing Receivables
Cash flow problems would be avoided if sales were completed immediately. However, it is unlikely that this will happen. You can, however, improve your cash flow by managing your receivables. You want to speed up the process of turning materials and supplies into goods, inventory into receivables, receivables in cash. These are the techniques that will help you achieve this.
- Offer discounts to customers who pay quickly.
- Ask customers for deposit payments to be made at the time that orders are placed.
- Credit checks are required for all non-cash customers.
- Don’t keep any of your old stock.
- Invoices should be issued promptly. Follow up immediately if slow payments occur.
- Track receivables to avoid slow-paying clients. They are instituting a policy of cash upon delivery (c.o.d. An alternative to refusing to do business with slow-paying customers is to create a monetary policy on delivery (c.o.d.).
Manage your Payables
The top-line growth in sales can mask a lot more problems, sometimes too well. Management of a growing company requires that you carefully monitor your expenses. Don’t let yourself be complacent and increase sales. If expenses grow faster than sales, you should examine your costs closely to identify areas where you can cut back or control them. Here are more tips to help you use your cash effectively:
- It would help if you took advantage of creditor payment terms. Pay the payment in full within 30 days.
- You can make payments electronically by using electronic funds transfer. Your suppliers will keep you current while you retain access to your funds for as long as possible.
- Your suppliers should be informed about your financial situation. Trust and understanding are essential if you need to delay payment.
- Pay attention to vendor offers for discounts on earlier payments. These may be costly loans to suppliers, or they could provide you with an opportunity to reduce your overall costs. The details are where the devil is.
- Do not always choose suppliers based on their lowest price. Flexibility in payment terms is often a better option than a bargain price.
Surviving Shortfalls
This doesn’t mean you’re a failure as a businessperson-you’re a typical entrepreneur who can’t perfectly predict the future. You can manage this shortfall with standard business practices.
Recognizing the problem early and accurately is key to managing cash flow problems. Banks will not lend to borrowers who do not have enough money right now. They would instead lend to you before your need, or at least months ahead. A banker will not help you if you are caught short due to a lack of planning.
If you think you’ll run out of money one day, your bank can give you a line of credit. This allows you the ability to borrow money up to a specific limit at any given time. Arranging a credit card line before you run out of money is crucial, as it makes it easier to borrow money that you don’t need.
Don’t trust your bankers. Instead, look to your suppliers. These people will be more interested than a banker in helping you continue your business. They also know more about your company. Just by asking, you can often obtain extended terms from suppliers. This could lead to a large, high-cost loan. If you have been a loyal customer and kept them updated about your financial situation, this is especially true.
Consider using factors. These financial service companies will pay you today for receivables that you may not be able to collect for weeks or even months. Because aspects require a discount, you might receive up to 15% less than you would otherwise. However, this will eliminate the hassle of collecting and allow you to fund current operations with no borrowing.
Ask your most loyal customers to expedite their payments. If necessary, you can offer a discount of up to a percentage point on the bill. Also, it would help if you went after the worst customers—those whose invoices are over 90 days late. You can offer them a steeper discount if you pay them today.
Selling or leasing assets, such as machinery, equipment, and phone systems, may help you raise money. Leasing companies may be willing and able to handle the transaction. However, it isn’t cheap, and you might lose your assets if you fail to make lease payments.
Carefully choose the bills you will pay. Pay the minimum amount and leave the rest. Payroll first – employees who aren’t paid will soon be dismissed. Pay crucial suppliers next. Ask the rest to waive payment or make partial payments.
