Understanding Cash Flow is Critical to Business Success
May 9, 2019
Businesses stand a better chance of surviving critical business junctures when they know what cash they have coming in and going out. Having Cash Management tools in place provides the advantage of speed and agility in reacting to changing circumstances. Using today’s available technology through banks that specialize in business banking solutions, business owners have affordable access to state–of–the art cash management solutions. The key is to systematize and automate wherever possible.
Set accounts receivable payment terms
As a business owner, if you let your customers dictate their payment terms, their cash flow problems become your problems. Include in the terms of your accounts receivable specific time frames for paying the balance due, late payment penalties, and conditions that may trigger legal actions. Good customers will respect your formality.
Automate billing
If it takes more than one person or more than one day to get an invoice in the hands of a customer, you are wasting valuable time and resources. Using an automated billing process not only reduces staff costs, it accelerates the conversion of accounts receivable into cash.
Automate collections
Automate your collections system with one that provides a daily report sorted by age of account and amount owed. This will not only enable you to foresee potential cash flow problems but help you focus on outstanding accounts in order of priority. Ask your business bank about an automated collections system.
Accept electronic payments
With the availability of affordable electronic payment processes through a business bank, such as credit cards and Electronic Funds Transfer, there is no reason why you can’t accelerate your cash receipts while minimizing float. Digital payment options not only streamline the receivables process but can provide greater protection against fraud.
Put cash to work
Move cash automatically from your business checking account to an interest–bearing account each night. These automated “sweep” systems determine how much surplus cash can be swept, leaving what’s needed for the next day’s payments. Putting your excess cash to work could add needed funds to your cash flow each month.
Control disbursements
For the extra few weeks, or even few days your business can keep cash on hand earning interest, it is worth the effort to analyze the payment terms of your vendors and suppliers to determine a precise payment schedule. The objective should be to keep cash in your business as long as possible. This is best achieved using an automated accounts payable system linked to the Automated Clearing House (ACH) or Electronic Funds Transfer (EFT).
Digitize accounts payable
Utilizing electronic payment solutions, such as Automated Clearing House (ACH), Electronic Funds Transfer and online banking platforms enable you to streamline the accounts payable process, reducing the time, cost and errors associated with manual payments. The ability to monitor transactions in real time enhances your ability to manage your cash position at all times.
Outsource payroll
Automated payroll processes reduce costs while increasing employee satisfaction. Many small businesses have adopted payroll cards as a way to provide employees with a secure, convenient and low-cost way to manage their finances. The payroll is downloaded directly to Visa®* cards, which can be used anywhere and provide the cardholders with liability protection. *VISA® is a registered trademark of Visa International Service Association.
Partner with your Bank for More Creative Solutions
New technologies make cash management and centralized processing affordable to small businesses. Businesses can link into the Automated Clearing House (ACH) through banks and benefit from streamlined collections and payment processes. Remote deposit services enable businesses to make deposits from wherever there is an Internet connection. Utilizing a centralized portal, all cash management functions can be managed online, providing a level of control unheard of a few years ago.
With the array of robust cash management solutions available, small business owners never have to be in the dark about their cash situation.