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.
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