Cash flow is critical to any business, no matter its size. With poor cash flow management, even a profitable business can end up in bankruptcy. If the amount of cash coming in is less than what's being spent, businesses are unable to make investments or will need to borrow money to stay afloat.
Getting your invoices paid on time is essential to positive cash flow. Read more to gain an understanding of cash flow and how cash flow management impacts your business.
What is Cash Flow?
By definition, cash flow is the flow of cash or cash-equivalent into and out of the organization, as a measure of a business' liquidity and overall performance, within a certain period of time. Cash flow can be tracked weekly, monthly or quarterly and will reveal positive flows or negative flows.
When cash from sales and accounts receivable, investments or financing is more than what is spent on accounts payable, expenses, payroll and debt payments, your cash flow is considered positive. When the outflow of cash is higher than the inflow, your business may be signalling trouble or where changes need to be made.
What is Cash Flow Management?
Cash flow management includes the functions related to both of the inflows and outflows of cash within your business. An analysis of your cash flow statement will reveal a positive or negative number for that period and will inform of potential steps to take next. The Statement of Cash Flows will reveal if your receivables aren't being collected fast enough or if your expenses are too high. Proper cash flow management, including reducing expenses or collecting on accounts receivable, will help bring your cash flow statement back to black.
Improve Cash Flow And Get Invoices Paid
A typical reason for a negative cash flow statement is not enough cash coming in quickly enough. Growing your business can be helpful, again if the cash flow is managed properly. Here are best practices to achieving those results:
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Increase sales (but only if you're also collecting on receivables)
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Collect on accounts receivable in a timely manner
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Review and tighten credit policies to prevent late or non-payments from customers
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Secure loans and extend payables
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Build a cash reserve
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As you can see, getting your invoices paid on time is extremely important to positive cash flow.
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Invoice regularly
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Review payment terms, offering incentives for paying early and fees for paying late
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Offer flexible ways to pay
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Always follow up
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If your business has fallen too far behind in collecting receivables, it's important to figure out why and how really quickly. Cash flow is too important and vital to the success of your business.
An accounts receivable clean up service can help by calling on your behalf, reviewing A/R and credit policies and suggesting best practices.
Reduce the Likelihood of Future Late Payments:
Contact Enterprise Recovery about A/R Clean Up
