CBN Advert

newscorner

Business news

Cash flow management

No Comments Share:

Image result for Cash flow managementCash flow management is very critical for all SMEs in this period of recession. The companies that have been able to survive in this trying time are the ones that have been able to manage their cash very well.

Cash is the lifeblood of a business and also critical to the growth of any business. Businesses are highly dependent on their cash flow and must either cut cost or look for alternative funding when they are not being paid on time. When cash is not readily available and bank loan is hard to get, a company can be pushed to the brink.

Cash flow impacts on a company’s liquidity. Liquidity means cash-in-hand and convertibility of assets into cash. A company is said to be liquid if it’s able to pay up its obligations in the near future.

Access to cash gives company the confidence to take expenditure decisions whenever it wishes to with less concern on how to source for funds. Healthy cash flow and cash availability put companies in a strong position to make some decisions.

Understanding cash flow focuses on the cash going in and out of your business.

Cash management should have an organizational framework that clearly defines who is to be responsible for:

Cash Collection

Authorizing Payments

Cash Surplus Investments

Ways to manage cash flow:

Effective cash flow management is important to the survival of any business. The following ways must be combined together to achieve the best in cash flow management.

Measuring cash flow

Preparing cash flow projections for a period (monthly, quarterly or yearly) is the first step in managing your cash flow. It is also called cash budget. An accurate projection can alert you of trouble before it strikes.

Understand that cash flow projection is based on a number of factors, including your customer’s payment histories, finance, operations and administrative expenses. You can prepare the cash flow on the assumption that receivables will continue coming in at the same rate they have been recently, and payables can be extended as they have in the past. Ensure you have included expenses such as fixed assets, loan interest and principal repayment and also account for seasonal sales fluctuations.

Improving Receivables

Instant payment for sales made will never have a cash flow problem. Unfortunately, credit sales are inevitable but your cash flow can be improved on by managing your receivable.

The basic idea is to improve the speed with which materials and supplies are turn into products, inventory into receivable and receivable into cash.

Here are some techniques to use:

Offer discounts to customers who pay their bills rapidly

Prompt issuance of invoice and immediate follow-up if payment is slow in coming.

Ask customers to make deposit payments at the time orders are taken.

Get rid of old, outdated inventory for whatever you can get

Track account receivable to identify and avoid slow-paying customers, by instituting a policy of cash on delivery as an alternative to do business with slow-paying customers.

Ensure you have many payment platforms available to your customers such as POS terminal, online transfer, quick-teller etc.

Previous Article

NSE to sanction seven banks, 21 firms for poor governance

Next Article

LCCI supports SMEs through trade promotion, policy advocacy

You may also like

Leave a Reply

Your email address will not be published. Required fields are marked *