Cash Flow Management Daily
The lag between the time you have to pay your suppliers and employees and the time you collect from your customers is the problem, and the solution is cash flow management.
Cash flow management means delaying out put of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible.
Most CEO’s tend to focus a lot on profit and loss statements and ignore their cash flow and balance sheet reports. By following the cash flow on a daily basis, you can learn more about the flow of your business, than using almost any other business tool. And by considering the impact on cash in making various decisions, you can avoid cash draining activities.
A company may seem profitable on paper but actually suffer from poor cash flow.
When looking at your numbers, here are a few cash flow management tips:
- It is simply smart practice to keep your inventory clean and lean, as low as it can be without sacrificing timely delivery to your customers.
- Take a close look at your payment terms for suppliers.
- Are you enforcing them?
- Do you act quickly when they fall behind?
- Would it benefit you to offer suppliers incentives to pay early?
- Are your overtime wages under control?
- Are you taking advantage of flexible work schedules to possibly reduce some fixed salary costs?
If you got paid for sales the instant you made them, you would never have a cash flow problem. Unfortunately, in the real world most of the time you have to wait to get your invoice paid. What’s important to recognize is that you can improve your cash flow by managing your receivables.
Here are specific techniques for managing your receivables:
- Offer discounts to customers who pay their bills rapidly.
- Ask customers to make deposit payments at the time orders are taken.
- Require credit checks on all new noncash customers.
- Get rid of old, outdated inventory for whatever you can get.
- Issue invoices promptly and follow up immediately if payments are slow in coming.
- Track accounts receivable to identify and avoid slow-paying customers. Instituting a policy of cash on delivery (c.o.d.) is an alternative to refusing to do business with slow-paying customers.
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