While cash flow can be complex and sprawling to manage, spanning various departments and processes, it’s critical to any business’ survival to get a firm grip on its overall cash picture, and gain the ability to dial into any or all of the components that can improve it. Below are six areas to tackle as you improve your cash management.
Remain cognizant of your daily cash position and know your assets and liabilities. Reconcile accounts and maintain a comprehensive understanding across your General Ledger and all the financial institutions where you have accounts.
Cash flow forecasts must be accurate and dynamic to guide your business' strategy effectively. Update them constantly as variables change. Adjust with each expenditure, scheduled payment, receivable or expected payment date. Accommodating for shortfalls or periods with excess capital is crucial to successful cash management.
Send invoices promptly, as soon as a product is delivered or a service is rendered, and don’t wait until an invoice is past due to engage with customers about their payments. Include links to facilitate payments in automated email reminder campaigns that go out before and on the invoice due date, and establish a merchant account so customers can pay you via their preferred method. Ensure customer email and phone contacts are refreshed regularly.
Increase the urgency of the messages that go out to late-paying customers when invoices are not paid on time. In addition to invoicing proactively, businesses that sell on credit and have sizable accounts receivable must understand the significant negative impact of late payments on their cash flows. Establish a customer relationship management process for collections that takes into account customer size as well as how frequently and by how many days they tend to pay late. Reduce the risk of write-offs with a systematic, scalable collections process that links to cash flow forecasting to avoid surprises and plan for growth.
Maximize payment terms to shorten your cash conversion cycle and leverage early payment discounts when they are available. Maintain audit records for all payments — for example, process, approvals and remittance details. Connect accounts payable to cash flow forecasts to better understand when, who and how to pay.
Ensure access to cost-effective credit before you need it. Integrate virtual cards with payments to unlock cash and gain working capital benefits. Add a variety of credit tools to bridge short-term cash flow gaps and manage cash buffers.
While each of these steps contains complexities, technology can assist in strengthening your understanding of cash flow — and how to best put cash to work for your business.