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10 Basic Techniques for Better Cash Flow Management

cash flow

Cash flow is the ultimate measure of your company’s liquidity. Your Brisbane accountant will classify cash inflow is any cash coming into the business. It can be in the form of cash sales, rent income, A/R collections, loan proceeds, customer deposits, and capital injections. Cash outflow is the opposite, it is the money or cash going out of the business. It can be your paid expenses, business expenses, sales refunds, loan payments, interest payments, and A/P payments.

cash flow description

Ideally, the amount of cash coming into the company should always be higher than the outlay. There are acceptable exemptions for negative cash flow, which includes cash purchase of assets and cash payment of debts. Also, not all positive cash flows indicate good business standing. Bank loans and proceeds from the sale of an asset not part of the merchandise should be noted as an exemption as the inflow is not a direct result of normal business operation.

Cash flow management is important, especially for smaller businesses with limited capitalisation. A consistently positive cash flow means asset liquidity and corporate flexibility. This translates into a company who is better able to adjust to market changes and always has available asset for investment and other opportunities.

cash flow dead

Here are ten easy techniques to manage your cash flow;

1.       Make it easier for customers to pay cash

Offer a discount if customers pay in full or buy in bulk. Accept card payments through phone, in the store, and on your web store. Include online payment options like PayPal, Square, Google Wallet, or Skrill on your website. You can also display your account numbers where they can send money for payment.

online shopping card payment

2.       Invoice quickly

Do not delay with your invoicing. In most cases, customers are just waiting for the invoice for them to pay. Clearly state the amount, items purchased, date delivered, and date due. Have the customer acknowledge receipt of the invoice – a signature or an acknowledgement email will suffice.

invoice form

3.       Closely manage and monitor the A/R

Closely manage your accounts receivables. Aging of accounts is an effective way in speeding up A/R collection. Limit giving out long term A/Rs to established clients, collect as soon as due, and intensify collection efforts on overdue accounts. An experienced Brisbane accountant can help you devise an effective A/R management process.

accounting numbers

4.       Manage inventory

Inventory is usually a large part of your liquid assets. It is fine if the turnover is quick, or if you are preparing for an anticipated demand. But if your inventory is sitting in the warehouse with no immediate sale in the offing, then your cash is trapped. Forecasting of sales, demand, and production schedules can help you manage inventory.

chained inventory boxes

5.       Pay attention to your A/P

Are you piling up on your accounts payables? Suppliers and creditors do not look kindly on overdue accounts. Aside from the additional interest expense, you might also be ruining your credit score with the missed payments. It is also good to look closely into the credit terms you’ve signed onto. Are you getting fair interest rates? Can you get better ones? Are there rebates from early payments?

business woman busy working

6.       Know your suppliers and creditors

Review your current creditors and suppliers. How long have you been doing business? Maybe it is time to get better deals, especially if you have been a good client. Banks are ready to offer better credit terms to good payers and established clients. Are there new suppliers in the market? What kind of products and deals can you get from them?

business man busy with computer

7.       Pay loans ASAP

Paying your loans as they are due have a lot of advantages for you. You avoid penalties, improve your credit standing, and can lead to better credit terms in the future. Interest rebates are often rewarded for early and on-time payments. Take advantage of all the savings options, opportunities for cheaper loans in the future, and lowered expenses or cash outflow.

paid loans

8.       Crank up sales

If you increase your sales, both of your income and cash flow also increases. Aside from sales and other earnings, other sources of cash like A/R collection, capital injection, or loan proceeds do not contribute to income. Revisit your pricing, launch marketing campaigns, revitalise your sales team, or update your packaging.

up trending graph

9.       Manage your overhead

There are two main classifications of your company’s expenses – the variable expense, which are directly attributed to the cost of the service of merchandise you are selling, and the overhead expense, which are necessary costs but are not directly attributable to the cost of sales. Of the two, it is the overhead that can be managed without affecting the product or services you’re selling. Is your warehouse too big for your needs? Do you have unused office rooms in the building? Are there too many cashiers in the store? Find areas where you can save.

millenials busy with gadgets

10.   Forecast your cash flow

Make a cash flow plan for the next year and for each of the next three turnovers. How much cash are you expecting to come in? Get the figure and compare it against your expected total cash outlay. Include sales, production, and demand forecast to your plan. Having a plan will show you how to maximise the use of available funds while maintaining your company’s liquidity.

cashflow forecast

It is okay to encounter negative cash flow once in a while, but your total cash inflow should be higher than the outflow. Take note that cash flow is not a basis of income and cash inflow is not sales nor profit. Call us for a detailed and better discussion on profits, income, and cash flow. Our seasoned Brisbane accountants can help you design cash flow plans, forecast, and management process bespoke to your company.