5 steps to successfully managing your company's cash flow

Read our short guide introducing five steps to improving your company's cash flow management.

Helen Cockle

Keeping an eye on your cash flow is key for small and medium-sized businesses. Issues with your cash flow might immobilize your company, leaving you in a position where you're unable to pay your bills. As a result, ensuring that you have a positive cash flow should be an essential component of your business plan.

1. Your credit policy

It can be tough to extend credit to consumers. While it is a good method to build a client relationship, customers may sometimes take advantage of it and delay the payment procedure. This means that you've got money tied up, forcing your accounting staff to waste time and effort attempting to collect payments and may end in your company having negative cash flow.

Be careful about who you extend credit to. Make a firm policy for identifying which of your clients are qualified for credit and which aren't. Before you give anybody new credit, make sure to conduct a credit check on them. Being careful about how much cash you credit and who you credit it to is key.

Make a firm policy for identifying which of your clients are qualified for credit and which aren't.

2.  Cash reserves

Sometimes, your business is going to run into issues with cash flow. When that happens, you’ll need access to capital, fast. One of the best cash flow risk management solutions is to build up a large cash reserve. This can provide a safety net in case of unexpected economic events or late payments, giving your business a little more space to breathe. Having reserves will create stability in your cash flow statement.

There are a number of ways to start managing your cash flow more effectively and develop a significant cash reserve. For example, reducing business expenses may result in additional revenue, but you might also consider renegotiating any outstanding loans held by your business. You'll have lower monthly payments if you agree to a longer loan term, so you can set aside even more cash. Calculating cash flow and thinking about ways to improve your business finances will help you provide financial stability to you and your team.

Cash
Sometimes, your business is going to run into issues with cash flow.

3. Invoice financing

Another potential cash flow risk management strategy is invoice financing. Invoice finance allows you to borrow against the value of your company's outstanding invoices. In exchange for a fee from a third party, you'll be given a percentage of the value of your invoice. There are several types of invoice finance, including invoice trading, invoice discounting and invoice factoring.

4. Improved invoicing

Optimizing your invoicing process can lead to a significant improvement in your business's cash flows. Many companies struggle to deliver bills on time, waiting days or even weeks for their customers to pay. This causes delays and cash flow issues that can be avoided and jeopardize your ability to access funds when you need them.

You should make sure that invoices are sent out as soon as feasible and with as few mistakes as possible. You will receive payments sooner by sending your invoices on time, which has a significant impact and will help create a positive cash flow situation. It's also an excellent idea to look into automated invoicing software to improve your cash position.

Optimizing the invoicing process
Optimizing your invoicing process can lead to a significant improvement in your business's cash flows.

5. Automated payment collection

Finally, you may benefit from using a payment collection system to manage your payments. This allows your company to have a regular cash flow and frees up time for your accounting and accounts receivable staff tracking down late payments and money coming in.

We at Futrli know that managing your business cash flow can be very challenging. We are here to help - get in touch to discuss how we can support your business through our forecasting software or just a chat. In no time, your cash flow statements will look much better and your company will be left with more money.

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