10 Tips to Help Manage Your Business Cash Flow

Businessman holding phone and looking at phone displaying financial information.

How to Improve Your Cash Flow Management

Sometimes, it is not the lack of cash that can cause a business crisis; rather, the source of the problem is not properly managing the money. Even if sales are on target, if you do not effectively manage your cash flow, you may find yourself unable to meet your commitments let alone expand your operations. Here are ten tips to help you manage your business cash flow more efficiently.

1. Keep a Rolling Cash Flow Forecast

To be able to manage your cash flow, you will need to know what to expect from one week to the next, so set up a rolling cash flow forecast, and update it at the end of every week. Your rolling cash flow forecast should be arranged in weekly columns for the next four to eight weeks, and monthly columns after that. The cash flow forecast should contain estimates of all your expected cash inflows and outflows. If you keep your cash flow updated weekly, you will be able to plan better for potential cash shortfalls.  

2. Keep Your Accounts Up to Date

Some of the crucial data for your rolling cash flow report will come from your historical accounts. Your cash inflows from sales, for example, will be based on your aged accounts receivable. Some of your cash outflows will be based on your aged payables. In order to make sure that your cash flow forecast is accurate as possible, you will need to keep your accounts up to date. Your financial reports may also help you estimate when purchases of inventory might be needed.

3. Monitor the Long-Term and the Short-Term

When you are maintaining your cash flow forecast, look at both the short-term and the long-term rolling closing balance. Your forecast for the next few weeks will warn you of any immediate issues that may arise. And you can use your long-term cash forecast to plan for any significant outgoings that will need to be covered in the future.

4. Manage Your Accounts Receivable

To ensure that your sales invoices are paid on time, you will need to stay on top of accounts receivable. Issue sales invoices as soon as they are due and chase outstanding invoices as soon as they become overdue. You might also be able to speed up payment of your invoices by offering early settlement discounts. Providing alternative ways for customers to pay you, such as credit cards and PayPal, will also speed up the settlement of your sales invoices.

5. Build Up a Cash Reserve

Try to set aside some money each month for emergencies. Cash flow forecasts are only estimates, so you never know when you might need extra funds. When you do have some money held in reserve, transfer it to an interest-bearing account so that it earns you some extra income.

6. Manage Your Accounts Payable

The credit that your vendors give you is free, so only pay your suppliers when they are due. In times of a cash flow shortage, you will also need to prioritize payments to suppliers to ensure that late payment of an invoice does not cause any significant issues. It is advisable, though, to pay suppliers on time when you can afford to do so. Paying vendors on time may help you negotiate better supplier deals in the future. And timely payments will also help you build up some goodwill with your suppliers should you ever need to delay payments to them in the future.

7. Take Advantage of Settlement Discounts When You Can

If any of your suppliers offer you early settlement discounts, it is usually best to take advantage of those terms if you can. You will probably find that the money you save by claiming settlement discounts are more than what you could earn in interest if you held back payment.

8. Take Advantage of Free Credit

Take advantage of free credit opportunities, even if you do have the cash to pay for purchases outright. If a company offers you sixty days to pay for some new office furniture, for example, take the free credit. You can then move the cash needed to pay for the items to an interest-bearing account for sixty days.

9. Use a Sweep Account

Ask your bank to set up an automatic sweep for your checking account to a savings account. A sweep account facility will transfer any surplus funds into an interest-bearing account at the end of every day. If your checking account needs extra funds to within a set limit, the sweep feature will transfer funds back again from the savings account.

10. Implement Strict Purchasing Control Procedures

Keep strict control over who within your organization can place purchase orders, and who can authorize payments to be made. All your cash flow planning will be fruitless if an employee commits your business to a significant expense that you were not expecting. In a small business, it would be best if the owner approves all purchases and payments. In a larger company, you will need to set appropriate limits on the value of orders that employees can place with vendors. Keep strict control over the raising of checks and making of payments, too. You don’t want to find that a well-meaning bookkeeper has sent a payment to a vendor that you had planned on paying a month later.

The Bottom Line

Whatever the size of the business, cash flow is something that must be actively managed. Implementing the above strategies will help you manage your business cash flow. But the important message to take away from this article is never to take your eye off the ball when it comes to cash flow.

About Universal Funding

Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.