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Cash flow management is the ability of a business to estimate how much cash it has on hand, how much cash is coming into the business, and how much cash is going out. This also entails forecasting whether there will be a cash surplus or shortage during any given period. In addition, cash flow management allows the business the determine what is causing surpluses or shortages. Following cash flow management tips such as being aware of cash flow indicators, evaluating a company's credit policies, and renegotiating contracts are some of the best tips for cash flow management.
Signs that alert a business to the fact that a cash shortage or surplus is on the horizon are called cash flow indicators. One cash flow indicator is the economic conditions of the business industry, as well as that of the individual business. Planning for these changes in advance allows businesses to react quickly and efficiently. For example, a business could make a contingency plan as to what it will do to rectify the situation if the business cash flow drops by a certain percentage.
As part of cash flow management, a business should also review its credit policies, which involves the collection of outstanding customer payments. This may involve letting go of customers who are less profitable or who do not pay on time. It also requires a business to choose whether or not it will extend credit to customers at all. If a company does choose to extend credit, it should make sure to have a policy in place that explains the terms and conditions of the credit account. In order to ensure the business is extending credit to customers who are reputable, it should also create a customer credit account approval policy that includes an application, and credit and reference checks.
A company can also improve cash flow or keep it consistent by always invoicing customers promptly. After invoicing, steps should be taken to collect the money as quickly as possible. This may include calling customers who are past due on payments. In addition, when an account is past due for a certain time period, the business may want to send the account to a collection agency to continue to try to collect the money.
To manage the outflow of cash in a business, one of the best cash flow tips is to renegotiate contracts with vendors and suppliers. If the business can buy the same product or service from a different vendor, talk with the current vendor to see about bringing the price in line with the competition. When the lease comes due on the business property, the business should try to renegotiate the rental rate of the new lease, especially if rental prices have changed.
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