The net amount of cash that is being flowed in and out of the business for its operation is termed as cash flow in business. A long term positive cash flow is one of the fundamental measures of company’s ability to generate quantifiable value to the shareholders. Simply put, cash flow is like the blood flow in and out of the heart that is necessary for heathy functioning of human body.
Cash Flow Management – A Critical Factor for Business Success:
Amount of cash coming in not adding up to the amount of cash going out is the first sign of an ineffective cash flow management and things often go south when a business doesn’t take necessary steps to address the issues. And cash flow problems happen to be one of the leading causes of business failure, according to research and we agree. A business that doesn’t get a handle on the cash flow is a business that is destined to suffer huge losses and eventual derailment.
So, in this blog here, our team at Outsourced Bookkeeping is here to give you 2 simple ways to improve your Cash flow management.
Streamline Accounts Receivable Process for Better Cash In-flow:
Increasing the cash in-flow by freeing-up the cash strapped in the books is critically important for a better cash flow management. And an effective Accounts Receivable policy is the best way you can accomplish this.
Though businesses adhere to formal Accounts Receivable Policies that lays down collection of receivables and their timings, majority of them do not strictly enforce them for the multiple reasons. While in some cases, the traditional and manual Accounts Receivable thwart the process, in majority of cases businesses extend the deadlines or compromise on payment terms for better discounts in favour of new sales. Late payments and compromised payment terms forms the base for cash crunch as the business is simultaneously obligated to pay their bills of Accounts Payable.
A more streamlined and an effective Accounts Receivable process can free-up your cash inflow and here are a few ways you can do it:
- Enforce a clear and concise credit approval process, on the basis of market conditions and credit worthiness of the customers followed by timely review the process.
- Assign a clear credit limits, payments terms, tax rates and discount terms to the customers. Maintain a customer master data that consolidates accurate information for all payment process. Ensure a review and update the data on timely basis.
- Automate Accounts Receivable Process to reduce human errors and time taken to prepare and send accurate invoices.
- Track the customer accounts that offer slow-payments and find alternative ways like COD (cash on delivery) to accelerate the payment process.
- Reward prompt payments with better payment terms if possible or offer discounts to encourage timely payments in the future.
Control the Cash-outflow with a Strategic & Automated Accounts Payable Process:
While the cash in-flow is one side of the coin, cash out-flow is other side that is crucial for cash flow management. Majority of the business extend their Accounts Payables in an effort to increase the working capital which can strain supplier relationships and erode years of good will and faith. In some cases, paying early can help avail the discounts and rebates that save money and build trust.
Here are few tips for managing Accounts Payable process to improve your cash flow:
- Know and identify the benefits of paying early and paying at deadline to take right route based on your working capital requirements.
- Leverage electronic payment options to eliminate the possibility of delays, late payments and strain in working relationships.
- Duly communicate with the suppliers in the event of late payment and make it up to them when situation arises.
- As said in Accounts Receivable, analyze the payment and discount terns and negotiate better deals based on market situation and demands. Ways push for discounts or flexible payment options from suppliers.
All the above tip scan be easily implemented by automating Accounts Payable process which makes it even easier to track and manage your cash flow and accrues your many benefits in terms of improve your cash flow management. We have already written as blog piece here: 5 Reasons to automate your Accounts Payable Process if you need more information about the topic.
As said earlier cash flow is essential blood flow to the heart of business. Better the blood flow to and fro from heart, better the body’s health and longevity; similarly effective positive cash flow is indication of healthy and successful business. Just like exercise and healthy diet are important for an optimized blood flow and functioning of heart, good cash flow management is critical for better cash flow and functioning of a business, even more so for small and medium businesses.
An effective and streamlined Accounts Receivable and Accounts Payable Process make the pillars of the optimized cash flow management and hence, is essential for small to medium businesses. If you are business owner looking to outsource Accounts Receivable Process or Accounts Payable Process for accuracy and efficiency at lower costs, Outsourced Bookkeeping can help you. You can find us here: https://outsourcedbookeeping.com/