Managing Cash Flow for Business Prosperity
There's more to managing cash flow than many business owners realize. Regardless of which stage your business is in, the effective management of cash flow can be the critical difference between success and failure.
By mastering the two pillars of effective cash flow management—Optimizing Inflows and Controlling Outflows, small business owners can avoid unnecessary cash flow crunches and position themselves for growth.
Optimize Cash Inflows
Converting sales into cash on hand promptly is crucial for maintaining healthy cash flow. The most effective way to accomplish this is by accelerating your receivables. That is sometimes easier said than done, but there are some steps you can take to keep your receivables from mounting up.
Communicate clear payment terms. Smaller businesses often feel the need to offer flexible payment terms to attract and keep customers. But it’s also a way to ensure future cash crunches. More than special treatment, customers appreciate clearly stated payment terms if they know they are being treated fairly. They’ll also respect your strict enforcement of those terms just as they would their own.
Simplify your billing. Getting invoices in the hands of your customers quickly is crucial to converting sales into cash. The traditional method of generating invoices periodically can lead to chronic delays in receiving payments. Your business bank has the technology to streamline the process of generating invoices on demand to start the receivables clock as early as possible.
Use electronic payments. Using electronic payment solutions such as Automated Clearing House (ACH) or electronic funds transfer (EFT) to collect payments can accelerate your cash inflows by days or weeks. Most customers today prefer electronic payments because it increases efficiency and security, as it would for you.
Use remote deposit. No more running to the bank to deposit checks that may not clear for a few days. Remote deposit makes it easy for your business to deposit checks to your bank from any location. Checks deposited remotely through a photo scan on your smartphone or computer are typically cleared in a day.
Control Your Outflows
When trying to maximize cash flow, business owners tend to focus on the money flowing into their business. However, it’s the cash flowing out of their business that can have the most significant impact on the health of their cash flow. By streamlining and automating the payables process, you can keep cash on hand longer while reducing payment processing costs.
Make payments electronically. Stop draining business resources with manual check writing and checkbook reconciliation. Electronic payment solutions such as ACH or EFT will streamline your payables process through scheduled, automated payments. It’s also more reliable and secure.
Stretch your payments
Schedule your payments around their actual due dates rather than an internal payment schedule. This will enable you to keep cash in your business as long as possible. Review your suppliers’ payment terms to see where you might be able to stretch your payments (i.e., from 30 days to 45 or 60 days). When combined with an automated payables system (ACH or EFT), your cash won’t leave your business to the last possible moment.
Automate your payroll. You can reduce staffing costs and control the timing of disbursements by using an automated payroll solution. An outsourced payroll solution can also reduce costly errors while increasing employee satisfaction.
When it comes to managing cash flow, businesses have more options than ever. Banking solutions that offer ways to optimize cash inflow while controlling cash outflow—the same solutions used by large corporations—can bring stronger cash flows along with much-needed flexibility and efficiency to businesses of any size.