Maintaining steady cash flow is essential for the survival of a business and especially small businesses. That operates with limited resources and limited access to funds. Cash flow problems are common for businesses of all types, which keeps business owners on their toes. While trying to maintain a proper balance between cash inflow and outflow. So that the business remains buoyant at all times. Business cycles are uncertain, especially when collections get delayed that strains. The cash flow as companies finds it challenging to maintain business operations. By meeting the minimum financial liabilities of bill payments, salary payment, rent, etc. Cash boosts the buying power of companies that helps to augment business operations. That lead to increased turnover necessary for business growth.
Robert Trosten believes that the output-based evaluation of small business performance to judge business health is a faulty approach as it does not reveal the correct picture. Therefore, some companies that make good profits may suffer from poor cash management. To maintain proper cash flow, you must focus on other factors like managing receivables and payments that help balance the cycle of cash requirements.
What factors to monitor for ensuring good cash management will become clear on going through this article.
Managing receivables – Robert Trosten
Receivables are money that the company earns from sales and other sources. The business cycle includes selling goods or services to customers. According to the agreed terms of payment based on the agreed credit terms. Offering credit to customers is the typical pattern followed by businesses. With rare exceptions of advance payments for very specialized items. Until payments come in, it shows outstanding receivables in the book of accounts. And is mostly responsible for creating a cash crunch, especially for companies with deep pockets.
The process of collecting the sales proceeds consists of raising sales bills or invoices. Small after supplying the goods or services and wait till the completion of the credit period. For customers to make payments. Although customers tend to make delayed payments, delay in raising invoices is also a reason for payments coming in late.
Even timely payments do not ensure receipt of money on time because of the time. It takes money to process after receiving payment. This is the experience of most small business owners. In the least, it takes about 30 days to get the cash in hand. Factoring this aspect while offering credit to customers can provide some relief.
Bad debts are just too bad
It is good to calculated risks for business growth by increasing sales. Still, to ensure that the efforts bear fruits. It is essential to ensure that payments are received on time or else it can severely affect cash flow. And disrupt business operations. Chasing for outstanding payments can give limited results if the customers are chosen without scrutiny and turn undependable. The biggest risk arises from customers failing to make a payment or turning bankrupt. Moreover, chasing outstanding payment might not always be worth if the cost is more than what you recover.
Your efforts to manage cash effectively should be complemented by proper business management to give the best results.