Learn how to manage cash flow basics an being able to do it goes a long way to keeping your business afloat. You may have used all your working capital and have reached a point where you can’t pay your suppliers, buy any essentials or even be unable to pay wages.

A time delay between when your customers pay you and when you have to pay your suppliers could be the main problem. Your suppliers need payment within 30 days or they put a stop on your account, but your customers are taking longer to send the money they owe you.

Learning the fundamentals of how to manage cash flow properly is usually the solution.

You need to work out how you can delay payment to vendors as long as you can, while at the same time getting your customers to pay you on time.

The Basics Of Cash Flow Management

What is cashflow?

According to Investopedia, cash flow is “the net amount of cash and cash-equivalents being transferred into and out of a business”.

Businesses normally track their cash flow on a weekly, monthly or quarterly basis. There are fundamentally only two types of cash flows:

Positive: Where the amount of money coming into your business from sales, accounts receivable, etc. is greater than the amount going out.

Negative: When the amount of money going out of the business is greater than the money coming in. This usually means trouble, but there are ways to turn a negative into a positive. Cutting down on your expenses is one quick way to improve the cash flow, but this is not always possible, especially if you are just starting the business.

Managing Your Cash Flow.

Cash flow management is essential for any type of business, but it is vital for new businesses. Without monitoring your cash flow you will have no idea if the business is going to succeed or fail.

Plan And Constantly Monitor Your Cash Flow

• Keep your accounts accurate and up to date. Any cash flow projections will only be as good as the information you glean from your reports.
• Use a cash flow spreadsheet to help you with the situation. Although most spreadsheet templates are designed for monthly input, change the columns to weekly. This will give you a more accurate picture of money coming in and going out.
• Negotiate with your vendors. Ask them to increase your credit terms from their normal 30 days to 60 days. This will give you a bit of leeway in outlays.
• Don’t allow your customers to dictate the payment terms. All too often, a new customer will not adhere to your terms and will delay payment to you for 60 days, even 90 days if you let them. Be firm, but fair and polite.
• Invoice your customers immediately after the service has been provided. Don’t be afraid to put payment terms on your invoices and state what the penalties will be for late payments.
• Transfer all the transactions to the cash flow spreadsheet, entering the amounts by the due date in the respective week’s columns. You need to know by the week when you must pay money out and when money is due to the business.
• If needed, to give a more positive cash flow, delay a payment to a supplier by a week or try to get a customer’s payment early. You must be diligent about recording all this information. If you forget or put it off for even a week then it could spell trouble and be the beginning of the end.

Know-How To Get More Income Or How To Reduce Payments Out.

Increase in Sales

If you need to increase your cash position, consider ways to increase sales or attract new customers. Advertising campaigns or marketing channels like social media can prove effective without too much outlay.

Tighten Your Credit Terms

Customers who pay late are a disaster for a small business. Ask for references from a new customer and follow them up.

Consider accepting credit card payments

Offer your customers the opportunity to pay you by credit card. You will incur merchant fees every time a credit card payment is processed, but you will get paid faster and your cash flow improves.

Obtain A Line Of Credit.

Get a Business Line of Credit. At some time during the life of your business, you will need to be a borrower of funds as insurance against cash flow problems.

Keeping on top of your cash flow is vital to a successful business. Don’t allow a few cash flow miscalculations put you in a money crisis. A few smart moves and your company’s cash flow is in the black.