Cash Flow Management

‘Cash is king’ as the saying goes and in the current economic environment that is now truer than ever. No matter if you are a new business or a long established business with a history of been profitable, it is essential that you manage your cash flow efficiently if you are to survive. In this article we shall look at some ways in which you can manage your cash inflows and cash outflows more efficiently in order to improve your cash flow position.

Cash Inflows:

If you could receive the money for all sales the minute you made them you would never have a problem. Unfortunately this will never happen. However, there are some ways in which you can get your customers to pay quicker:

• Offer discounts to customers for quick payment.
• Ask customers to pay deposit payments when orders are made.
• Do credit checks on new non-cash customers
• Adopt a policy of cash on delivery as an alternative for not doing business with slow paying customers.

Cash Outflows:

You need to keep a tight control over your expenses as you need to ensure you have the funds available to pay your expenses when they are due. Here are some ways in which you can use your cash more wisely:

• Take full advantage of creditor payment terms. If payment is due in 30 days then take the 30 days instead of paying straight away.
• Availability of bulk discount but only if it suits your business, you do not want to get caught with stock that you cannot quickly turn into sales.
• Choose suppliers with the most flexible terms which might not always be the cheapest one but will be better in the long term from a cash flow perspective,
• Change to a VAT cash receipts basis so you only pay the VAT on sales when you have been paid. {applies to turnover < €2 million from May 2014}

Cash Budgets:

Finally it is always a good idea to prepare a cash flow budget where you forecast your cash income and expenditure for a future time period. This way you can see in advance any periods where you might have a cash flow deficit and can get a plan in place to try and solve the problem.

So as you can see the ideas here should be relatively straightforward to implement and hopefully they can allow you to manage your cash more efficiently and thus avoid cash flow problems in the future. 

Find out other ways to improve the performance of your business by contacting one of our business advisors on 1850 812 500

Article by Paul O’ Donoghue