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Cash Flow Management – What You Need to Know


Cash flow management is the most vital, but most ignored financial tool available to businesses. In-fact, many business owners confuse cash flow management with accounting. But the rules of accounting define when those transactions are recorded in their financial statement. This is of no help when business owners need to manage their cash for the upcoming week or month. Many businesses fail because they run out of cash, even when their statements show profitability.

What Exactly is Cash Flow Management?

It is simply the tracking of money that comes in and out of a business. Moreover, it is a process of analyzing as well as optimizing the net cash receipts minus the expenditure. After-all, it is all about the management of your finances effectively so that there is enough cash to grow. With the best cash flow management strategies, you will be able to predict how much money will be available so as to cover vendor invoices, payroll etc.

Now let us talk about cash flow strategies-

  • Cash Flow From Operations

Usually the operational cash flows from day to day operations such as sales and production. This figure determines whether a firm has enough money coming into paying operational expenditure and bills. In order to have a long term viability, there should be more operating cash inflows.

  • Cash Flows From Investments

CFI shows how much money has been spent or made from any investment in a period of time.

  • Cash Flow From Financing

A CFF shows the net flow of cash that is utilized to fund the business. The activity includes transactions that involve the issuance of equities, debt, or paying dividends. Moreover, it also provides the investors an insight into a firm’s cash position including how their capital structure is being managed.

How to Manage Cash Flow in Business?

The financial statements are necessary to manage your firm and if you have been regularly monitoring your funds, then managing cash flow will become less cumbersome.

  • By Choosing the Right Payroll Cycle

You can properly structure your payroll to mesh with your income and complying with wage laws. In case you are generating daily revenue, then covering the cash needed would be much easier for weekly payroll. However, this can be quite a challenge for those with comparatively slow revenue streams. There can be some advantage to holding cash so as to pay less frequently, provided you fall into the applicable wage law.

  • Using Technology for Payments

Next on how to manage cash flow is opting for online payments in order to collect receivables faster. Moreover, the use of EFT (Electronic Fund Transfers) to pay bills would make the process much easier. This will surely help you keep track of where you are currently standing.  Whether it is the short or long term financial success, positive cash flow is vital. You can make the most of your cash by properly collecting payments, monitoring expenditures and utilizing the resources that make the entire cash flow process convenient.

  • Strategic Bill Payments

Another one in the small business cash flow management is to extend payables to spread your payments. It is very important for you to not pay all of your bills at once, because it can drain your cash which in turn will jeopardize your relations with the suppliers. What you should do is sort and review bills that are on priority and pay the important bills such as rent or payroll. For those payments which are more flexible or you can say less important, can be paid later. Additionally, always check for any discounts for paying bills early and prioritize accordingly.

  • Consider Invoice Financing

In case you are not able to negotiate or are needing money sooner, than the time you are able to agree upon with your customers, then invoice financing should be considered. It is quite different from the invoice factoring, that you purchase invoices at a certain discount and invoice companies will then advance the entire portion of the remaining invoices and you will repay that money with interest.

  • Make Sure There’s an Emergency Fund

Although your business is better, still you should make sure to put some funds aside every month. Doing this will be helpful in the event of potential cash flow problems. You would agree that no one can accurately predict what is going to happen, therefore it can be worth setting aside some emergency amount that would at least cover the bills. Another best thing would be to check your monthly outgoings and accordingly save around 3 to 4 months worth. It may not seem to be a complete solution, but should cover a few major cash flow issues for the time being.

  • Use the Best Tools 

Using the most effective tools like a  cash flow management software will help you keep track of your financial performance. It may sound a bit complicated, but using an intelligent software can actually come in handy. Moreover, you can also find a plethora of applications that enable you to manage bookkeeping with ease. The point is to choose a means to make your work as easy as possible.

  • Avoid Too Much Leniency With Your Customers

You should be fair to your customers without being pushy. A smart invoicing strategy will get the job done, but don’t be hesitant to take a formal action if there is a need. Keep a keen eye on your ARs turnovers too. If it is boosting up, then step up your efforts at getting payments. As the age of the receivables increases, their overall quality also goes down, therefore quick action is required.

  • Always Keep your Business & Personal Finances Separate

Next in this list of how to manage cash flow is to understand your cash flow and anticipate how it may change. You should never mix personal finances and business as it may leave you uncertain about the overall performance of your business. Always keep them separated as in this way you will know how much cash your business is actually generating. Assuming you follow this step, then you will certainly find yourself in a better position to pay yourself and utilize additional cash for the growth of your business.

In Conclusion

In the end it all comes down to the fact that cash flow is actually important for any business to succeed. It doesn’t matter how many sales you make, if that amount is not even coming through the main door.  Therefore, focusing on the cash control with strict policies including authorized approvals or hiring  reputed cash flow management or finance & accounting services will give you a peace of mind.


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