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The basics of cash flow management

manwithmoneyfan34926870.jpgYour cash flow is the lifeblood of your organization. Without proper management of the cash flow, your company will struggle to pay its invoices, payroll, and you will find it is hard just to stay afloat. So what can you do to maintain control over your cash flow to ensure that your company will be successful? This article will offer you a basic guide to cash flow management.

Build up your cash reserves
You need to be able to build up your cash reserves in order to sustain your business. When you have products that break down or you need to order equipment and other things, how will you finance this? You won't always be able to acquire loans for your company so your best option may be to dip into your cash reserves. These cash reserves are emergency funds and they may be the only thing you have to protect your business from future economic hardships. Having cash reserves also help to show lenders that you have a strong business and they will have an easier time offering you money in the future.

Know your cash inflows
What are your cash inflows? Where is your money coming from and how is it providing your company enough money to support your payroll and other things. Here are things that make up your cash inflows:

  • Payment from customers for goods and services

  • Interest money on savings and investments

  • Shareholder investment costs

You need to be able to watch your cash inflows carefully and adjust accordingly in order to be sure that you have the funds necessary to pay for your payroll and other things. When your cash inflows start to dwindle, turn to your marketing department to bring them back up. They are responsible for getting your company name out there and generating the profit you need to sustain your cash flow.

Know your cash outflows
In addition to knowing how much money you have coming in, you need to know how much money is going out of your business. Overspending can cause your cash outflows to be significantly higher than they should be. Here are some of the common cash outflows you need to monitor in order to ensure that they are going to help the business and that you aren't spending more than you should:

  • Purchase of your raw goods and materials. This usually includes all of the things you need to keep your business running on a daily basis.

  • Payroll

  • Rent, mortgages

  • Loan repayments

  • Credit cards

  • Income taxes

  • Purchase of fixed assets such as your computers and office supplies


Check your cash outflows to see if you have some with specific dates and others that have fluctuating dates. You need to know this information before you use your cash flow to purchase a large order for your inventory and other things. Without money in your cash flow to pay for the basics of your business, you will fail.

Cash flow improvement advice
In order to fix cash flow problems, implement an invoicing policy. Most of the cash flow problems happen when you have customers that don't pay their bills in a timely manner. If you want to offer them credit payment terms, you still need to watch on how they are paying. Ask for money up front which will help to cover your production costs, this way you won't risk losing as much money as you wait on the customers to pay their bills. Another way to get your customers to pay sooner is to include interest for late payments. Factoring is another great option you have as it will force customers to pay their bills and you get to collect the funds just days after you generate the invoice.

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