Manage Your cashflow

Cash Flow Management has become an integral part of the business cycle in today’s cash adverse trading environment and it has become the primary indicator of a business’s health. However the majority of Small to Medium Businesses tend to have placed this process on the backburners, to their detriment, as it is said “most businesses can survive several periods of making a loss, but can only run out of cash once”

In its simplest form, Cash Flow can be classified into two categories Cash Inflow and Cash Outflows of a business. Under  the Cash Inflow category are Cash Sales, Credit Sales, Investments received and other incomes, and ,Cash Outflows would encompass Purchases, Accounts Payable, Wages, Taxes, Loan Repayments, this varies from business to business.

Managing Cash Flow entails gathering information that represents these two categories and building a trend. This enables the business owner to measure whether sufficient Cash Inflows into the business will cover the subsequent Cash Outflows.

The effects of Cash Flow in a business are real, immediate, and if mismanaged, unforgiving, therefore control, monitoring and protection are fundamental to staving off inadequate cash reserves. Managing Cash Flow should be a daily discipline.

The first step in managing your Cash Flow is to look at and understand the components of Cash Inflows/Outflows that affect the timing of your cash in and out of your business. A complete analysis will reveal the problem areas that lead to the CASH GAP in your business and reducing this Cash Gap is the purpose of managing you Cash Flow.

A Cash Flow Forecast Budget should essentially be the centre focus of a business plan providing information for the future success of the venture. When implemented, it provides information as to the availability of cash based on projected Sales and Expenses, allows the business owner to have a clearer picture of how the business is doing and shows specific times when additional funding may be required.

The purpose of Cash Flow Management therefore is down to timing. If order to establish whether you have a problem, ask yourself the following questions:

1. Do you ever fall into overdrafts by mistakes?
2. Do you struggle to meet business overheads and wages on seasonal fluctuations?
3. Have you traded too strongly and had to ask for special funding arrangements to meet your commitments?

These challenges all signal a Cash Flow deficiency and require good Cash Management skills. The objective therefore is to practise proactive rather than reactive management of your Cash Flow, in other words pre-empt fluctuations so as to be able to take timely steps to manage the situation. 

Credits Influence on Business

It has long been envisaged that the credit functionality in a B2B environment was ‘needed’ as opposed to ‘required’, to ensure companies collected on their provision of products/services exchanged through credit transaction. I contend that the credit function within a business has evolved to an extent that it is imperative to the livelihood of businesses alike in modern day trading. 

Let’s consider today’s business activities where a large percentage of trade in the exchange of products/services is done on credit. In an ideal world an organisation would expect payment for these goods within the agreed time and seemingly put very little assertiveness to ensuring receipt, and to be fair most debtors make payments as required. However looking back to such a time when cash was not as fundamental a component for survival as it is now, it has become imperative that a business has it’s liquid cash on hand in order to survive. The process of ensuring this fundamental “life blood” is achieved for any business has landed squarely on the shoulders of the credit functionality within a business.

For the credit function to achieve cash liquidity for the business, it has become apparent over recent times that it is necessary to grant accessibility, within the different organs of a business, to the credit function to enable it’s effectiveness. I shall explain. In more cases the not, the reason for the lack of an inflow of cash into a business is due to a large extent, on errors generated within the organisation and frankly no customer will want to part with their money if certain criteria’s have not been met in the supply of their product/service. Now in these cases, these errors will mostly come to light at the point where the business is expecting payment for the supply of goods/services or when the payment is held back from the supplier. This in many organisations is usually communicated to the business through the credit/accounts receivable department by the customers and it is at this point that the organisation becomes fully aware of the reasons behind their lack of cash from their customers

“Speed here is everything”, lack of which would inevitably mean lack of cash, with further repercussions within the organisations which we are all too familiar. Having the ability to promptly address the short comings of non- payment, requires, 1) internally establishing the cause, and rectifying, 2) ensuring the customer is addressed promptly with the necessary adjustments and receipts payment . These actions are best served by the credit functionality as it encompasses both fronts of internal and external stakeholders.

I therefore conclude that in today’s business environment the credit functionality in a business has to be at the forefront of any strategic planning, that are aimed at improving and managing the cash flow stemming from goods/services provided through credit and that the credit functionality should be incorporated as one of the “Monitors-In-Chief” in any business.