Cash is King: How to Manage Cash Flow

As a business owner or CEO, you likely wear multiple hats at your company—from driving revenue and closing deals to managing client relationships and mediating employee issues. However, one important aspect to running a business is having the ability to successfully manage and oversee the company’s financials, including where to obtain, spend and save money. For many businesses, the key to success lies in sound management of the company’s cash flow. Below are some tips to help you keep your bottom line positive and minimize the stress associated with receiving or billing out funds.

Accounts Receivables
When companies hold onto their accounts payables longer to manage cash flows, it lengthens the time it takes for companies to receive payments, which can be frustrating and disadvantageous. Some ways to combat this issue are:

  1. Send invoices promptly. Clients are more likely to pay you while your service/product is fresh on their mind.
  2. Have the A/R clerk work with the sales team to reach out to customers. Sales staff already have established relationships with clients and are comfortable connecting to clients.
  3. View aging of A/R weekly, and know each client’s status in the payment process.
  4. Create an internal process for collection problems by outlines the steps involved with the collection, such as letters, calls, emails and/or a collection agency.

If the problem is not solved, do not be afraid to stop shipment/services. At the end of the day, you are just trying to keep your business net positive, so it is okay to discontinue relationships with customers if they are not driving revenue for your business.

Accounts Payables
Managing A/P can be a juggling act between getting the right people and the right software to ensure payments go out on time and in an orderly manner. Some ways to keep your A/P straight are outlined below:

  1. Create a process that is clearly defined for both payment and internal control procedures. This includes providing Purchase Orders, packing slips, invoices and approvals, and ensuring that your process is easily tracked through the progression.
  2. Obtain clear terms from the vendor. There may be discounts if payments are received early, but the only way to know about them is through an understanding of your vendor’s conditions.
  3. Review aging A/P reports regularly, and stay updated on your status so you can ensure you never pay late fees.

Other Cash Management
Cash management is not only about A/R and A/P, it also relates to inventory, credit cards and capital expenditures. Inventory levels can impact your cash depending on the amount of inventory your company requires on hand. In addition, credit card collections can be impacted by the processing company and/or bank that your company uses. Lastly, capital expenditure purchases should be budgeted as you are reviewing projected cash flows.

Monitoring your Cash
Having cash does not ensure you will be financially stable; you need to actively manage and consistently monitor your cash for healthy finances. Make sure you secure one of your most important assets by:

  1. Monitoring daily balances and transfers online. With physical resources being converted to online sites, it makes it easier for you to keep track of your finances.
  2. Preparing weekly budgeted inflows and outflows and knowing approximately what will be coming in and going out is key to a company’s operational success.
  3. Performing bank reconciliations promptly after receiving statements
  4. Completing cash flow and capital expenditure budgets.
  5. Maintaining a strong, open relationship with your bank, so that they handle your money with care and are more likely to provide better services if you are open and willing to connect with them.