No matter what industry or field, effective cash flow management is always a challenging problem for businesses. There are many methods to help organizations manage cash flow, but not all of them are appreciated. In the article below, Bizzi will offer some ways to help you and your business build the most effective cash flow management process.
What does effective cash flow management mean?
Simply put, effective cash flow management means delaying spending cash as long as possible while raising whatever money someone else owes you, paying you back as quickly as possible. Good.
To manage cash flow effectively
Always have a cash flow forecast
Schedule your business's cash flow forecast for next year, next quarter, or maybe, if in a special situation, every week. Accurate cash flow forecasts can help a company sort out problems before they happen.
A complete cash flow forecast is a synthesis of components including: payment history of customers and partners; Direction of upcoming expenditures and knowledge to envision problems that can occur on the supply side of a smart manager. Make predictions about delayed receivables or non-renewable accounts payable. Managers also need to make sure that they do not ignore fixed costs, including rental costs, import costs, wages and taxes, benefits, equipment, and advertising. ,…
Improve accounts receivable
As mentioned at the beginning, if the company is paid immediately after selling the goods, cash flow management becomes a much easier matter. Unfortunately, the reality is not so good, so improving accounts receivable is still one of the significant issues in cash flow management. The most basic strategy for this is: Improve the speed at which the company turns materials into products; Turn inventory into accounts receivable and turn receivables into cash. Following are a few techniques to do this:
- Provide discount incentives for customers and partners to pay bills faster.
- Ask customers, partner companies to pay for goods at the time of ordering as much as possible.
- Get rid of old, defective, and obsolete inventory with whatever the business can get.
- Monitor and have a suitable mechanism for late paying customers and partner companies.
Manage accounts payable
The rapid growth of earnings sometimes blinded managers. Especially for businesses that are growing, whenever they see costs increasing faster than normal income, administrators need to carefully check to find appropriate ways to cut or control them. Here are a few small things to note:
- Make the most of the payment terms of creditors, banks, distributors. If the payment is due in 30 days, don't pay it for 15 days. Please make the payment on the last due date. Businesses will still maintain good cooperative relationships with creditors and banks while still maintaining effective use of money.
- Communicate closely with suppliers so that they have an understanding of the financial position of the business. If the company needs to extend the payment, their trustworthiness and understanding is one of the most necessary conditions.
- Carefully consider the distributor's promotional offer for early payments. The reason may be that your supplier has a large debt to pay, or they may be suggesting that you change to reduce their overall costs.
- Don't always focus on the lowest price when choosing a supply. Sometimes more flexible payment terms can completely bring the business more profit than capital..
Which cash flow management tools should businesses use?
The oldest tools that we often use are papers and books in the traditional way of management. With this method, it is quite effective for shops/small businesses just starting up. Because the amount of cash is not too much and the risk is not high, managing cash in a recorded manner still brings certain efficiency.
However, with stores or businesses with a larger scale than this form, it will be easy to lose revenue and expenditure. Furthermore, if you lose the book, all of the store's income and expenditure information will also be lost and this is a huge risk.
Cash flow is recorded in detail for each invoice, each supplier or debt, employee salaries, other expenses, etc. Along with that is the ability to calculate and produce reports to help business people easily evaluate Assess the rate of change of cash flow, which costs are increasing, business efficiency through revenue, significantly reduce the risk of loss, thereby building a suitable business strategy. .
With a streamlined cost management platform for businesses - Bizzi will help you synchronize all data such as suppliers, orders, debts,... helping you manage centrally in a single place. This platform will help you get an overview of the cash flow of your business. At the same time, Bizzi has the ability to integrate with accounting and ERP software, making it easy for the accounting and finance department of the business to work and synchronize data quickly and promptly.
- Learn more at: https://bizzi.vn
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