All too many business owners think that the battle is won once the marketing rolls out and the product is sold. They see that their investment of time and resources has paid off and therefore, assume that their goal has been achieved.
However, the fruit of these hard-won victories will quickly run out if the accounts receivable, as well as the accounts payable, is not carefully maintained with a structured cash-flow management plan.
Here are some key points for businesses to keep in mind when managing cash flow.
Analyse cash-flow history and identify patterns
This is particularly useful for businesses that have been in operation three years or more, as the past can prove a helpful guide for predicting future ups and downs. You can more consistently capitalize on the ‘ups’ while preparing for the ‘downs.’
Review your cash-flow management systems and processes
Who have you invoiced? Who has paid? And have you made your payments? Without reliable systems and processes in place to keep track, you simply cannot accurately ascertain what your monthly cash flow is, let alone manage it.
Ensure accounts receivable receives before accounts payable pays
With each new business relationship, decide with your debtors a credit plan that will ensure you get paid on time. If a particular arrangement is not working, try something different, such as a payment plan. A partial payment now is better than no payment at all. Make it easy and convenient for the customer, by having all the necessary information on the invoice, and offer various payment options.
As for accounts payable, try to get as extended an arrangement as possible. This will help ensure that you’ve been paid by your debtors first. You will reduce the risk of default and help ensure you make payments on time.
Be transparent with your bank
Your bank is your most important creditor. It can also be your best ally if your cash flow projections and business plan inspire confidence. Communicating with your bank about your payment status will also engender greater confidence and lessen the negative impact should a surprise late payment or default arise.
The above key points are all necessary elements in managing your cash-flow well, but they are not sufficient in and of themselves. They is no replacement for tailored advice from an experienced professional. The CFOs at the CFO Centre are all highly experienced in cash-flow management and are dedicated to helping ambitious businesses
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