Good cash flow management is perhaps one of the most effective approaches to ensure your business enterprise continues to grow. It’s a practice of optimizing the amount of money moving into and outside your company. It also describes the process of monitoring and analyzing the net amount of cash receipts less expenses. In simple terms, it’s all about how you manage your business finances.
There are several benefits of cash flow management. For instance, it ensures you don’t run out of cash as it enables you to predict your future revenues and ensures that it’s always more than expenses.
Additionally, with good cash flow management, you won’t worry about not being able to compensate your employees. You can always set aside the money you need to pay them monthly. That not only ensures workers remain motivated but it also helps reduce employee turnover. That goes without saying that cash flow management is the backbone of running a successful company.
Here are some cash flow management tips and tricks for your small business.
1. Consider Working Capital Line Of Credit
The first and most effective cash flow management strategy is to consider a working capital line of credit. It’s a type of loan you can take to finance your business’s daily operations.
While you can use other types of loans to purchase long-term assets, working capital lines of credit aren’t used for that purpose. It provides the working capital to cover short-term operational expenses.
Therefore, working capital loans provide extra capital to keep your business running when there’s less cash coming in. In this way, you can have an effective cash management strategy. But you must partner with the best lender.
2. Accept Online Or Electronic Payment
Accepting electronic payment can help you to manage cash flows in various ways. It ensures customers settle their accounts receivables faster. It ensures you’ve enough money to run your company when needed.
Apart from that, asking clients to use electronic payment methods helps reduce the presence of physical cash in your business office. It minimizes the chances of losing your money through theft or loss.
Therefore, online payment methods ensure faster money transfers while reducing theft.
It’s, therefore, one of the best ways to manage your cash flow.
3. Consider Investing Excess Cash In Money Market
Having too much cash at your disposal is important since it keeps your business liquid.
However, it can harm your cash flow and your firm’s growth.
For instance, keeping money in your cash office requires you to invest in safe locks, CCTV cameras, and security guards. All these attract extra costs, which hurts your cash flow.
Besides, by holding cash, you’re losing many opportunities to earn passive income.
One of the most effective ways to use excess cash is to invest it in the money market.
This ensures you aren’t using your capital to secure idle cash. It also allows you to earn interest which boosts your cash inflow. That ensures you manage business cash flow more effectively.
4. Utilize Accounting Software
You can’t ignore leveraging the power of modern technologies when it comes to managing business cash flows. For instance, you need to install accounting software to streamline how you track all financial transactions. It also helps generate invoices and simplify your tax payment and filing process.
While that’s the case, not every accounting software on the market can be suitable for your company’s cash flow management. You need to find the best solution for your needs.
For instance, any accounting automation tool you select should be compatible with all other applications on your business networks. It should also have a user-friendly interface and adequately secure your data.
You must also understand that accounting software doesn’t have to be that costly. You can utilize free open solutions available on the market. But whether it comes at a cost or free, ensure it can help you achieve your cash flow management needs easily.
5. Encourage Customers To Make Payments On Time
Today, most companies operate on credit terms. Simply, they allow the customer to use their products or services and pay at a later date. Though that enhances customers’ experience and satisfaction, sometimes it can hurt your cash flow, especially when clients take ages to settle their dues.
One of the best ways to boost your cash flow management is to encourage customers to make payments on time. You can also offer cash discounts to customers who make payments before the expiry of the credit period. For instance, if you’ve got a credit policy of 30 days, you can offer something like 2% or 3% to debtors who settle accountable within 20 days. This way, you’ll encourage prompt customer payments to improve your cash flow management.
6. Consider Invoice Factoring
Indeed, encouraging customers to make prompt payments can help promote your business cash flows. However, sometimes you may not get through with this strategy. For that reason, you should have an invoice factoring strategy in place.
Invoice factoring is a business financing option that offers quicker funding. It involves selling your accounts receivables to third-party companies at a discount.
The company buying debtors is the factoring firm and will give you the money you need instead of waiting for customers to make payments. They’ll also be responsible for managing and collecting debts. That ensures you don’t incur extra expenses to reach your debtors. All these enhance your business cash flow management to ensure your company remains afloat. By converting outstanding invoices into immediate working capital and entrusting debt collection to experts, your company can navigate potential financial challenges more effectively, reducing the impact of what is unbilled accounts receivable on your cash flow and ensuring the sustained financial health of your business.
7. Negotiate With Suppliers For An Extended Payment Period
Another way to promote your cash flow management is to see whether payments to suppliers or vendors can be extended. For instance, if a supplier allows 60 days to pay, you may request them to extend that period to 90 days, allowing you to keep the money in your business or cash flow pipelines longer.
Takeaway
Managing cash flow is necessary for the success of your firm. It ensures you’ve enough money to manage daily expenses. It also ensures you don’t spend more money than what you receive. All these helps build a profitable enterprise. You can implement the strategies above to successfully and efficiently manage your cash flow.
