Cash Flow Management Tips for Small Businesses

Written by Emily Liu

On June 24, 2020

Cash flow is the net amount of cash being transferred into and out of business. It usually comes from customer payments, receipt of loans, or investor funding. Cash flow is the lifeblood of a business. To keep the business running, entrepreneurs need cash to cover all company expenses, including purchasing raw material, paying employee salaries, and buying supplies. All business owners want high positive cash flow to run their business smoothly and make new investments to grow it. Here we’d like to provide small business owners some tips to help them manage their cash flow efficiently.
 

Ensure Customer Payments

 
For small businesses that provide products or services, customer payments are the primary source of companies’ cash flow. Therefore, business owners need to have an effective invoicing strategy to ensure they can collect all payments on time. Directly remind customers, let them know that the company is expecting to have a payment as soon as possible. When delivering products and services, entrepreneurs can give them a notation saying “payment is expected on invoice receipt.” In cases of potential delinquency, it is critical to contact a customer early earlier. If the customer has financial difficulties, offer them some payment options, such as credit card charges, to help them pay on time.
 

High-Quality Accounting

 
Accounting is a mandatory part of cash flow management, which helps business owners forecast their cash flow and develop a better business plan. Business owners can predict the future cash flow according to the accounting record of history revenue. These pro forma statements can alert entrepreneurs in advance of any shortfalls in the future. Having an accurate and timely accounting record also helps business owners avoid over-expenditure to maintain positive cash flow. In this way, entrepreneurs would not need to search for money desperately when a big order comes. They can seize the opportunity and make more money for the company.
 

Stay Connected with Lenders

 
Running a small business is not an easy task. Sometimes unexpected things happen, such as COVID-19, which can hurt a business. In this situation, business owners may need more cash flow to help the company run smoothly. There are low odds of borrowing money from investors and large commercial banks during hard financial times. Therefore, it is necessary to build a good relationship with the financial community before the company needs their help. Keeping in touch with lenders, maintaining a good credit score, and keeping good cash flow can help business owners secure a commitment of future loans. Moreover, entrepreneurs can have a better understanding of a lender beforehand. In this way, they will be able to obtain loans when they need to aid cash flow.

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