4 Cash Flow Control Tips for SMBs

With core inflation and fuel prices surging, businesses easily can incur higher expenses than they anticipated. Owning your cash can help.

Ths U.S. Department of Labor announced that June inflation had reached 9.1% — the highest level since 1981. And it’s not just consumers who have been hit hard. Businesses, too, struggle to manage cash flows, including planning purchases and collecting payments from customers, when price uncertainty ripples through the economy. Plus, many economists are predicting that a recession might be on the horizon, which would further disrupt B2B purchases and sales, and in turn add pressure and difficulty to cash flow management.

The June jobs report also delivered unexpected results, with payroll costs rising and a 5.1% increase in hourly earnings, with unemployment remaining at 3.6%. That translates into higher costs for businesses not just when it comes to paying staff, but also potentially into additional training or retention costs linked to turnover or retention.

So what can companies, especially small and mid-sized businesses, do to gain control of their cash? Below are a few tips for owning your cash and ensuring stability and growth for your business:

1. Forecast your cash flows into the future

A cash flow forecast serves as a map, improving your visibility and providing insights on when to pay bills, prioritize collections or tap into credit to accelerate your growth. The insights from  forecasts tell you what you need to do to manage and improve your cash flow, so you can optimize your working capital.

2. Get a handle on your receivables

Managing accounts receivable has been particularly tricky since the pandemic struck, and continues to be so. More than 50% of B2B payments are made late, and as a result understanding customer behavior, predicting when payments will arrive and having an automated reminder program in place are all critical. When you create a forecast, anticipate the date payments will arrive based on your customers’ past behavior — rather than on an invoice’s due date. Checks can be time-consuming and awkward to track and reconcile — consider which forms of payment you accept, and whether check or ACH could be better options. Make it easy for customers to pay their invoices by including payment links with every communication you send them.

3. Manage your payables

How do you currently decide who to pay, how much and when? Do you maximize payment terms to hold on to cash that you might need to meet payroll, for example, or have the bandwidth to invest? Remember that you have options about how to pay, and with new technology solutions, you aren’t necessarily beholden to the payment methods your suppliers limit you to. Paying with a traditional or virtual credit card can or help you keep better transaction records, and earn rebates or other benefits. But managing payables well goes beyond finding and taking better advantage of efficiencies. Considering AP decisions within the greater context of your business’ overall current and future cash flows empowers your business to act more strategically when making and completing purchases.

4. Leverage credit to bridge any unanticipated cash flow gaps or seize opportunities for growth

Credit, whether through card use or with a line of credit, is an important form of working capital to understand and utilize well. Paying with credit can further extend the length of your payments by several weeks without incurring interest charges. As with the other levers that control cash flow (AR and AP), active management of credit can help you hold onto your business’ most precious resource — cash.

Controlling and managing all aspects of your cash flow as outlined above helps you act quickly and decisively when something unexpected — either positive or negative — happens. Remaining nimble in a climate of shifting prices, interest rates, labor costs and continued supply chain disruptions is a distinct competitive advantage.

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