5 Tips for Successful Cash Management

Managing the cash that flows in and out of your business is an important part of the finance function and is one of the key components that could be the difference between success and failure of your company. You may be doing well on sales, and you could even be showing a profit at the end of each month but if the cash from those sales is not flowing into the business quicker than it is flowing out to cover your costs, then you will inevitably have cash flow issues.

Cash flow management is essentially all about encouraging people to pay you as soon as possible, delaying paying people for as long as possible and ensuring you have adequate access to capital if the need arises. Here are 5 tips to help you with your cash flow management.

1.       Create a realistic cash flow forecast

The best way to estimate your cash flow and prepare for the coming months is to create a realistic cash flow forecast on a monthly, quarterly and yearly basis. So have a cash flow forecast from day 1 that covers your expected sales and expenses for each month. The forecast will allow you to keep track of how much cash you have at any point in time, how much is due in from sales you have made and how much you are planning to spend on wages and other expenses in the period. An up-to-date cash flow forecast will also tell you if there are any periods where you may start to run out of cash and help you to see what changes may need to be made. Remember profits don’t necessarily equal cash so don’t simply focus on how profitable you are. There will be plenty of time to obsess about your gross profit and net profit margins as the company develops.

2.       Look for part payment and deposits upfront

One way to manage your cash flow better is to seek upfront or part payment from customers whenever possible. This obviously helps with your cash positon but it also cuts down on the customers you may need to chase for payment. Incentivising customers who make their payment early by offering a discount on the price can work well but you do need to ensure you build any discounts into your cash flow forecasts. Forgetting to take account of a 10% discount for early payment can have a big impact on your cash forecast.

3.        Use the available technology

The days of stand-alone accounting packages that reside on one desktop computer in the office are long gone. Thanks to cloud based accounting software, the control is now back in our hands and we can now view all our accounting information when and where we want, send invoices directly to customers from the system, chase payments and make any payments on invoices due. Most systems now offer a direct import of your bank transactions so it’s never been easier to track the cash flows of your business. All companies should be making use of a cloud based accounting system, enabling them to see their cash flow situation at a glance, and closely monitor receivables and payables.

4.       Alternatives to the banks

Banks may say they are back lending to SMEs but that's not really what we're seeing on the ground. So if you can't access bank finance to support the needs of the business, what are the alternatives? This could be a post on its own but briefly I'll just mention peer-to-peer lending sites such as Linked Finance which provide a marketplace to enable companies to bypass the banks and connect directly with local lenders who provide business loans to businesses.

5.       Good Credit Control

Your company should have a good credit control system in place to make sure that money that is owed to you is paid on time. Make sure that your payment terms are clearly outlined for customers at the start of the relationship and that invoices are sent out in a timely manner. You need to stay on top of payment schedules to make sure that you are paid when it’s due. Even if you have to work with a smaller number of clients in the beginning, if you know they are reliable and quick to pay, it could be worth it.

Managing your cash flow may seem like a time consuming exercise but it’s worth the effort to track your cash very closely on a daily and weekly basis. Cash is most definitely still king and being able to tell what the company cash balance is today and what you expect it to be in 6 months time should be a priority for every business.