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Cash Flow Management
Tips for Keeping Your Cash Flow Positive.

Cash Flow Management: Keeping it Positive

October 31, 2018

Cash flow is the money coming in and money going out of your business. Managing your cash flow so you have more money coming in and available, then money going out is positive.

Keeping a positive cash flow lets you invest in your business growth, meet payroll deadlines, and stay current on your business expenses. Your business plan will identify where and when your major business expenses will occur to help you keep a positive cash-flow statement.Cash flow management tips

One major cause of businesses failing is the lack of cash flow. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management. Businesses often run into cash-flow problems because of lack of business, but another big reason is that of delayed or no payments from their customers.

Why is Cash Flow Management a Challenge?

Many people delay paying their bills until they are due. Companies do this as well. Why? It’s mainly two reasons. One, it improves their own cash flow. And two, if the company is waiting on payments from their customer, they don’t have the cash to pay their bills on time either.

As business owners, it is no surprise when customers don’t pay their bills on time. The customer knows they can get away with this because they know you want to keep their business. It is highly unlikely for a business owner to chase them for debt collection if they are just a few days (or even weeks) past the payment due date. And if the business owner does decide to do this, the customer might decide to take their business elsewhere.

Unfortunately, the attitude of customers is that your cash flow is your problem. Why would they pay right away to assist in your cash flow when their money is still in their bank collecting interest? Even if a company does fail because of insufficient cash flow, their customer will have the use of their money for six months or more, while collectors pursue them for their debts.

Cash Flow Management Tips

Cash flow management tips and solutionsCash flow management is a process that requires regular attention and sometimes hard decisions. Here are some suggestions to consider to improve cash flow management.

Negotiate with Clients and Customers

It’s a good practice to routinely review the payment terms you have with both your clients and customers. Compare the terms with the reality of when you pay or are paid. Some clients will accept a discounted payment if you pay within a specific time. If you have a client you owe a large balance to, negotiating extended terms can ease the burden on your cash flow.

When reviewing your customer’s payment terms and history, you need to separate the good from the bad. The customers who pay in a timely manner are making it easier to manage cash flow. Those who are consistently late or unreliable in paying should be customers you look to replace.

Pay within Terms

Part of the negotiating process with your clients is to pay your invoices within terms. Establishing a positive payment record allows you to negotiate from a position of strength. Once you’ve proven you are reliable, you can ask for extended terms or higher discounts if you pay early.

Avoid Concentrating Work

A common cash flow hole some companies fall into is concentrating their work with one or two customers. This is a dangerous habit. By concentrating work, you are putting your cash flow at the mercy and whim of your customer. If your customer suddenly has financial problems, or there is an issue with the job or service, payments are often quickly frozen or cut off completely.

Accounts Receivable Financing

Selling your accounts receivable to a factoring company will eliminate the waiting for 30, 60, or 90 plus days on customer payment. Instead, you can get an advance on your invoices within 24 hours. The cash from factoring is available to use towards any business expenses.
Factoring is an effective cash flow management technique. With the consistent advances from factoring, business owners cover their payables, have cash in hand for unexpected expenses, and take advantage of new opportunities to grow their company.

Want to improve your cash flow?

Remember, poor cash flow management is one of the biggest reasons businesses fail. Keep your cash flow positive with the help of accounts receivable financing and invoice factoring programs. Contact the financial experts at TCI Business Capital today for more information on how we can help.