Business is a balance of Expenditure, Profits & Revenue, sustenance of these in the proper ratio is crucial for any entity. Forecast of great deals or closures might give a positive vibe, but in the absence of inflow of funds, survival might be a question.
For any business, large or small, having a smooth cash flow will require snooping with every aspect of the business, from managing payables to receivables, managing inventory to sales, taking care of working capital finance etc.
Cash is the ‘King’. The time delay between payment to suppliers and employees and collection from vendors and customers is the major problem. The only solution is cash flow management which is very complex to manage. A consistent cash flow helps create a predictable future for businesses and contributes to future planning, budgeting, and reduced fixed capital needs.
If you are serious about managing your cash flows, the below-mentioned tips might be helpful.
Cash Flow Management
- Review & Forecast – The first and the most important thing to do is review existing vendors and customers, an analysis of who is prompt and profitable and who is not. Aligning payment timings of important or early expenses or vendors with the prompt and profitable suppliers. Having a good grip on inflows and inflows and a forecast both short term & Long term will be helpful. Conduct a good credit check on vendors or customers. In case of needs, take working capital finance for restocking inventory.
- Sell Invoices – Alternate form of financing is one of the best ways to manage your cash flows. A simple and effective solution is a bill discounting. Get your invoice discounted on an agreed percentage and get your business going.
Invoice discounting is a form of short-term borrowing often used to improve a company’s working capital and cash flow position. Invoice discounting allows a business to draw money against its sales invoices before the customer has paid.
- Overdraft Facility– Overdraft facility is a good option but comes with its hassles. In the event of payments getting delayed beyond your control, the repayment will add to a headache. However, if you are confident about the receivables, this facility is a good option.
Most banks will easily extend the same. Covering short-term needs and emergencies with a working capital finance could be an effective way to manage the business. Negotiate competitive rates and use the facility as when required.
- Renegotiating Contracts– If you have been in business and have been dealing with a vendor or supplier for a long time now, renegotiating payment terms might be a good idea. If businesses know how easy it is to work with you, they might be willing to reconsider and draft a new term giving way to a more relaxed cash flow environment.
- Inventory Management– One of the significant reasons for the cash crunch is overstocking in inventory. Regularly gauge your inventory and sales to determine future forecasts. Or, avail working capital finance for procuring equipment or buying raw materials.
Cash flow problems and its associated issues are well documented. Businesses need to streamline every facet of the business to get things seamlessly going.
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