The Importance of Cash Flow and How to Manage your Flows

Cash Flow Mastery for Small Businesses

Mastering the art of cash flow is what sets winning businesses apart from those who struggle to make ends meet. Bottlenecks in accounts receivable, unforeseen equipment failures, and other unwelcome surprises can result in a domino effect that can bring down the entire operation. Creating a master plan complete with backup plans A, B, and C is essential to ensuring that your company can weather any storm.

Creating your Cash Flow Master Plan

While there is no way to predict the future, you can evaluate your vulnerabilities and shore up weak spots to be prepared when troubles arise. Rather than leaving yourself in a spot where you may have to scramble for cash to make payroll because of a late-paying client, set up your policies to prevent tardy payments. If you’re unable to receive cash on delivery, include a notice on your invoices that payment is expected upon receipt. Many companies allow a 30-day window before collection proceedings begin. Shorten this time and stay on top of outstanding balances to help prevent cash shortages.

Conversely, maneuver your accounts payable procedures in the opposite manner. If there is no penalty for delayed payments to a vendor, hold on to your money as long as possible while still keeping a good relationship. Of course, one would not want to abuse the patience of a trusted source. However, larger companies may be more flexible with payment terms and keeping that cash on hand will help you keep your cash flow strong and healthy.

Hold your cash reserves in an interest-bearing account to keep your money working for you at all times. Liquidity will be essential, so CDs and long-term certificates may not be an option. Keeping your payroll on a bi-monthly cycle, rather than on a bi-weekly cycle can save administrative costs. You can also keep your money earning interest longer by only transferring payroll funds at the exact time it is required for timely payout, but not before.

For more ways to optimize your accounts payable and receivable processing for better cash flow Revap Group Capital.

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