Cash flow management is about striking a balance that leaves your business in the black once your expenses are paid and your earnings are received. To do this, you should strive to collect your receivables as quickly as possible (without causing conflict with your customers) while slowing down your payables (without jeopardizing your relationship with suppliers).
Doing so can maintain the amount of cash on-hand for day-to-day operating costs such as payroll, credit payments, and office space. The following strategies may help improve cash flow in your company and demonstrate how thoughtful account receivable initiatives today can prevent problems in accounts payable tomorrow.
Forecast Your Cash Flow
The first step to optimizing your company’s cash flow is knowing where it currently stands and where it is likely to go in the future. Keep track of your payables and receivables on a week-to-week basis, and you will have a much better idea of what lies ahead.
Seek Discounts from Payables
Separate your regular suppliers from one-off purchases. Try to establish a good relationship with your regular suppliers, and they will be more likely to negotiate rates, discounts, and payment dates. If you can convince your strategic suppliers to sweeten the deal, you may save handsomely on your largest, most essential expenses. Remember, the goal is to stretch and save. Stretch the payment due date and save as many dollars as possible.
Reduce Costs and Enhance Control with Purchasing Cards
Many payment processes are manual and time-intensive. Streamline the process, reduce manual check payments, save time, and generate efficiencies through the use of commercial cards, which can be used to pay vendors (purchasing) and/or for employee travel and expenses (T&E). You can potentially generate revenue for your organization from cash back rebates or rewards, depending on the program you choose. Plus, flexible reporting options can allow for smoother account reconciliation.
Encourage Early Payment of Receivables
The simplest and most common way for businesses to increase the speed of receivables is to offer discounts to customers who pay early. This doesn’t have to be a large discount, rather just enough to encourage your customer to consider paying earlier and more often. What might come as a slight hit to your bottom line can be a large boost to your cash flow in the end.
Evaluating Your Terms is Crucial
A key part of the cash flow balancing act is keeping customer terms and supplier terms in balance.
> Look at the terms you’re offering customers. Take time to evaluate whether they’re working for you and your customers. In other words, how well are your customers performing under your current terms?
> Adjust your receivables’ terms for a win-win. With suppliers, you want to see how their terms compare to others in the marketplace. You may even discover available discounts for paying earlier that outweigh the incentive to stretch the due date.