In reality, the basic mechanics of cash flow management apply similarly for small businesses and large companies alike; the only difference is in the tools they require. Growing small businesses need to collect cash as effectively and efficiently as possible, while gaining more control over the cash they pay out so it can be better utilized within the business. This requires a more deliberate and disciplined approach to cash flow management.
Fortunately, there are now some simple, affordable solutions that can help small businesses gain the upper hand on their cash flow.
Getting Cash In
Businesses must be able to convert receivables into cash as quickly as possible. When receivables get out of control, it could be the beginning of cash flow death spiral. The key is to systematize and automate wherever possible.
Don’t Allow Your Customers to Set the Payment Terms
If you let your customers dictate the payment terms, it might be just a matter of time before their cash flow problems become your problems. Set strict payment terms, even if it means losing a prospective customer, especially where credit is being extended. Include in your payment terms specific time frames for paying the balance due, late payment penalties, and conditions that may trigger legal actions. Good customers will respect your formality.
Automate Your Billing Process
If it takes more than one person or more than one day to get an invoice in the hands of a customer, you are wasting valuable time and resources. Considering that you could wait up to 60 days for a payment (with net 30 day payment terms), you can’t afford to manually bundle your invoices and send them once a week or once a month. Using an automated billing process can not only reduce staff costs. It can also accelerate the conversion of receivables into cash.
Automate Your Collections
For small businesses, collections can overwhelm their resources and put a serious crimp in their cash flow. Automate your collectible system so it can provide your billing person with a daily report sorted by age and amount owed. This will not only enable you to foresee potential cash flow problems, it will help your billing person to focus on outstanding accounts in order of priority. Ask your business bank about an automated collections system.
Accept Electronic Payments
With the availability of affordable electronic payment processes through a business bank, such as credit cards and electronic funds transfer, there is no reason why a small business can’t accelerate their cash receipts while minimizing float. Digital payment options can not only streamline the receivables process, they can also provide greater protection against fraud.
Put Your Cash to Work
In the digital age, cash should never have to sit idle. In the not so old days, businesses would have to bundle their excess cash and run to the bank to make a deposit. Today, your cash can move automatically from your business checking account to an interest–bearing account each night. These automated “sweep” systems determine how much surplus cash can be swept, leaving what’s needed for the next day’s payments. Putting your excess cash to work could add hundreds of dollars to your cash flow each month.
Control Your Expenses
Of course, many cash flow problems can be solved by better managing expenses. However, the focus for many small businesses tends to be on short–term expense reduction – cutting an expense here or there, or getting a one–time price break on materials, etc. Effective expense management requires a long–term plan with an ongoing review of expenses. The focus should be on creating sustainable savings in supplier and operating costs. For instance, it may be more cost effective to negotiate for better payment terms over price.
Controlling Cash Out
On the expense side of the ledger, controlling how, when and to whom payments are made can have as big an impact on your cash flow as getting cash in. The longer you can keep cash working for you in the business, the more control you will have over your total cash flow situation.
Control Your Disbursements
For the extra few weeks — or even few days — that your business can keep cash on hand and earning interest, it is well worth the effort to analyze the payment terms of all of your vendors and suppliers to determine a precise payment schedule. Many businesses lock themselves into an internal payment schedule based on a certain day of the week or month for paying bills. It’s not uncommon for some businesses to pay all of their bills at once, which can potentially create short–term cash crunches. The objective should be to keep cash in your business as long as possible. This is best achieved using an automated payables system linked to the Automated Clearing House (ACH) or Electronic Funds Transfer (EFT).
Digitize Your Payables
Writing, issuing, tracking and reconciling paper checks can tax the resources of a small business. Small businesses can now have access to electronic payment solutions, such as Automated Clearing House (ACH), Electronic Funds Transfer and online banking platforms that enable them to streamline the payables process, reducing the time, cost and errors associated with manual payments. The ability to monitor transactions in real time enhances your ability to manage your cash position at all times.
Partner with MAC for More Creative Solutions
With the array of robust cash management solutions available today, small business owners never have to be in the dark about their cash situation, and their cash need never sit idle again.
Contact us here for Business Cash Flow Management Solution for small Business.
