The health and prosperity of a business depends upon effective cash flow management. This includes promptly collecting receivables, monitoring payables, and having contingency plans for possible shortfalls. Here are some steps you can take to effectively manage cash flow for your company.

Improve Collection of Accounts Receivables

You have to have money flowing into your business, so effective collection of receivables is crucial. There are several strategies that can help you accomplish this. For instance, upon successful delivery of goods or fulfillment of services, send out invoices right away. If customers are slow in paying, issue reminders. Provide discounts to customers who pay swiftly. To minimize difficulties with collections of accounts receivables, run credit checks on new customers and require deposits upon submission of orders.

Handle Payables Carefully

When considering suppliers, assess payment terms as well as prices. If suppliers offer discounts for early payments, take advantage of these. Otherwise, honor their payment terms by transferring your payments electronically on the final day that they are due. This allows you to hold onto the funds and use them for the maximum period of time.

Track and Measure Company Cash Flow

To properly manage cash flow, monitor income from all sources as well as expenses such as rent, utilities, salaries, benefits, inventory, equipment, and so on. Use the data to prepare cash flow projections that can alert you to possible future difficulties for which you can prepare. When creating your projections, avoid being overly optimistic. Keep in mind factors such as seasonal fluctuations in sales, slow-paying clients, and unexpected expenses.

Prepare for Shortfalls

Periodic shortfalls are all but inevitable for entrepreneurs. Assuming early on that sooner or later you’ll encounter difficulties in cash flow helps you prepare for them. For example, open a line of credit at a bank while your company is doing well, and ask your suppliers for extended terms. Another method of boosting cash flow is factoring your accounts receivables, which gives you immediate access to cash that would otherwise not be available for weeks.

For more advice on how to manage cash flow, contact Capital Finance Partners.