Importance of Cash Flow Management and Ways to Improve Cash Flows

Cash flow is a vital part of your business. A positive cash flow enables you to grow your business, while a negative cash flow is a bad news for your business. So what do you do if you have negative cash flow? Here are ways to improve your cash flow.

What is cash flow management?

Cash flow management is when a company maintains control of its cash inflow and outflow. Its goal is to ensure incoming cash is more than the outgoing cash to ensure the business has a surplus. Cash flow management ensures that your business does not encounter any shortages. 

Ways to improve cash flow

To increase your cash flow, you should limit cash outflows and increase the cash inflows. 

Send invoices as soon as possible

You will not get paid if you don’t send out invoices. The faster you send your invoice, the faster you’ll get your cash. If you have a tedious invoicing process, you should switch to something that makes it easy to create invoices. Include due dates at the top of the invoice and have clear instructions on the accepted payment types. You should also include if there is a late payment fee.

Increase prices

If you have poor cash flow, consider increasing the prices. Make sure you strike a balance between being compensated for your work and having competitive prices. If you keep your prices too low, you’ll be selling yourself short. Lower prices can also show that you are not qualified. Always keep an eye on the market pricing and adjust your prices.

Consider leasing

By leasing, you pay in small amounts which improves your cash flow. Lease payments can be written off on your taxes because it is considered a business expense. 

Use high-interest savings accounts

A high-interest savings account will grow your cash position. Look for accounts with interest rates 25 times higher than the national average. You’ll earn more on your savings. 

Importance of cash flow management

Cash flow management is vital for your business for the following reasons:

• Maintain good relationship with vendors: Making late payments leads to high interest and affects your business relationships. With cash flow management, you ensure you are on good terms with your vendors.
• Understanding your spending: When you pay attention to your cash flow, you’ll have a better understanding of your business spending.
• Improve financial planning: Cash flow reporting facilitates better financial planning. You can make investments without any worries.

Tips to avoid a cash flow crisis

You can avoid a cash flow crisis by following the tips below:

• Know your vendors: Negotiate terms with your suppliers and request your clients to pay quickly so that your business can survive in case of a crisis.
• Stay on top of your inventory: If you buy inventory on credit, you need a good sense of accounts receivable to ensure payments are made on time.
• Know your cash management process: You can streamline your payables and receivables using automated billing and electronic processing. Streamline your payment process to ensure there is optimal outflow and inflow.

Cash flow management will ensure your business is successful. Follow the above tips to ensure you always have positive cash flows. For financial planning services, contact us today.