Business is a balance of Expenditure, Profits & Revenue, sustenance of these in the proper ratio is crucial for any entity. Forecast of great deals or closures might give a positive vibe but in the absence of inflow of funds, survival might be a question. For any business Large or small maintaining a smooth cash flow will require meddling with every aspect of the business, right from managing payables to receivables, managing inventory to sales, taking care of credit lines etc.
Cash is the ‘King’. The time delay between payment to suppliers and employees and collection from vendors and customers is the major problem and the only solution is cash flow management which is actually very complex to manage.
A consistent cash flow not only helps in creating a predictable future for businesses but also contributes to future planning, budgeting, and reduced fixed capital needs. If you are serious about managing your cash flows, the below-mentioned tips might be useful.
Cash Flow Management:
Below mentioned are 5 ways to manage cash flows
- Review & Forecast – The first and the most important thing to do is to review existing vendors and customers, an analysis of who is prompt and profitable and who is not. Aligning payment timings of important or early expenses or vendors with the prompt and profitable suppliers. Having a good grip on inflows and inflows and a forecast both short term & Long term will be helpful. Conduct a good credit check on vendors or customers.
- Sell Invoices – Alternate form of financing is one of the best ways to manage your cash flows. A simple and effective solution is bill discounting. Get your invoice discounted on an agreed percentage and get your business going. Invoice discounting is a form of short-term borrowing often used to improve a company’s working capital and cash flow position. Invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid.
- Overdraft Facility– Overdraft facility is a good option but comes with its own hassles. In the event of payments getting delayed beyond your control the repayment will add on to a headache, however, if you are confident on the receivables this facility is a good option. Most banks will easily extend the same. Covering short-term needs and emergencies with a line of credit could be an effective way to manage the business. Negotiate competitive rates and use the facility as when required
- Renegotiating Contracts– If you have been in business and have been dealing with a vendor or supplier for a long time now, renegotiating the terms of payment might be a good idea. If businesses know how easy it is to work with you, they might be willing to reconsider and draft a new term giving way to a more relaxed cash flow environment.
- Inventory Management– One of the major reasons for cash crunch is overstocking in inventory. Regularly gauge your inventory and sales to determine future forecasts.
Cash flow problems and its associated issues are well documented. Businesses need to streamline every facet of the business to get things seamlessly going.