Qcash Flow in business is like blood vessels in a human body. The risk of cash flow can always bring the “stroke” at any time even for the businesses that are thriving. Not least the business whether the business has the words still always have to contrive due to shortage of cash. The understanding of cash flow management in business is considered extremely important. And the cash management is paramount when it comes to the financial management of a company.
The essence of cash flow is the motion flow of currency into (inflow) and out (outflow), creating the possibility of payment or condition of insolvency of a business. Means you defer spending cash for as long as possible while raising any money others owe you, to pay you as quickly as possible.
Cash flow – blood flow in business
Money running around all parts, the profession of the business to help the operation run smoothly. Maintain a cash flow “healthy” is the guarantee for the survival and prosperity of any business. The delay or plan – time information is not clear between the period of accounts receivable and have to spend will always do, “blood stream” stagnant as stock, fiber rupture of the arteries, this problem has and always will be alarming problems that each director finance are desired control handle. The question: So how to let the blood’s circulation in a smooth way?
We are often faced with a shortage of revenues, even have both the excessive source of chi, or predicted and actual revenue sources to not meet the source of the genus has led to the closure of many businesses. All of that can be controlled by planning, selecting customers and partners, the optimal rotation time of capital and the number of goods, take out the alert and predict cash flow more accurately.
A number of methods to help manage cash flow effectively
1-planning, monitoring and control cash flow
A plan cash flow can accurately alarm in the best way for these problems before it happens. Because of the planning, cash flow not only are the estimated revenue and expenditure, the future and the feeling of the work. All of your numbers must be put in the “limit” clear. You need to predict all the indicators or factors related from your payment history, the treatment of the debts and the expenses coming to the patience of the supplier to you can be delayed longer.
In addition to the factors above, you should be careful with assumptions that have no basis, for example, the accounts receivable will continue to come up with the same rate or time that you have recent, accounts payable can be prolonged as long as possible as in the past, the expense is deferred, interest-free loan, to predict the same expectations in terms of sales, % rate, the expense or revenue to seasonal fluctuations, client time to pay, plan income and expenditure all the upcoming… all need to have a plan, scheme response assumed to be able to handle the different situations when problems occur.
2-Improve the accounts receivable
If you always get paid as soon as you have sales, you will never encounter problems with cash flow, but that rarely happens. You can still improve cash flow by improving the accounts receivable. Here are specific techniques to do this which you can refer to:
- Given the policies to reduce the price or discount for customers who pay invoices quickly.
- Ask customers to make payment at the time the order was made.
- Remove the inventory obsolete, expired. Released invoices timely after sales.
- Set and track the age of the debt details for each account and each client. If possible, remember the warning about the term of the receivables and to identify and prevent the clients pay slowly.
- Build a policy cash on delivery is another way to refuse to cooperate with the customers that pay slow.
3-Manage the details of the account to spend
When you are managing a growing company, you must consider the cost carefully. Don’t be “lull” in the satisfying by sales of your tank, that is not necessarily profitable. Here are some tips for the use of money wisely:
- Take full advantage of the terms of payment of debt. If a debt settlement in 30 days, don’t pay it within 15 days.
- Communicate with the suppliers so that they know the status of your current. If it’s time to delay a debt, which you will need to trust and sympathy of them.
- Consider carefully greetings discount for paying early.
- Don’t focus too much on low prices when choosing a provider. Sometimes the flexibility in payment terms can improve your cash flow than is the bargain for a bargain price.
4 – optimal management process finished goods and inventory to liberate cash flow
Problem solving room inventory always makes the business owner a headache. Solve the problem this source of money will not be stagnant. Incredibly necessary before production, businesses must anticipate the needs of the market, predict the number of goods that the company can sell out, because the ability to forecast not accurate enough to tell producers how much is medium, plus the lack of understanding of consumer markets and competitors as well as the causes for the excess production. The forecasts need to have achieved accuracy relative. Market volatility change the forecast need to more often and more continuous. So new, timely adjust the output. Minimize the quantity of excess production can help your business save a lot of costs such as raw materials, labor, and warehouse.
5-Choose the right customers and partners
One thing is quite popular now that many companies are stuck with the bad loan uncollectible due to client cause. The reason is that they did business with the company, not enough capacity payments, things that perhaps they should consider carefully before taking the contract. Setting and regulation of the specified payments when buying and selling, associated with regulatory laws to bind the customer is essential. Here are remedies important not only to protect the advantage before the law when something bad happens that matters it is the “reminder” for the partners when participating in the contract, if they are not really full capacity, payment will be less likely they want to involve the law. Choose the right partner will be required work time compared with the contracts signed quickly. But the patience that will be rewarded satisfactory.
In addition to the way on, today with the help of technology, businesses often choose the specialized software or SmartFin to support this work. And reality has proven the services and this solution brings efficiency to extremely large.
