Why it is Important to Keep an Eye on Your Cash Flow
If profits are up and the projections look good for the next month or two, should you kick back and relax? Maybe not. No matter how positive other signs may be, if you’re not keeping a close eye on your company’s cash flow, things could go haywire.
Even a temporary crunch resulting in late debt payments could cause your credit rating to fall and your cost of borrowing to rise. If you miss a loan payment or two, the lender might even call the loan. Here are some suggestions to help you maintain a healthy cash flow.
Develop a Cash Flow Budget
Projecting inflows and outflows on a month-to-month or week-to-week basis provides a critical snapshot of your business’s cash position and shows whether you’ll have enough cash on hand to meet your needs.
This may seem like a no-brainer, but if it’s been awhile since you evaluated operational procedures, it might be time to take another look. The more errors you can avoid, the better. New technology may offer some new ways to improve efficiency and lower costs.
Tighten Up on Credit
Wait to see how reliably new customers pay before extending credit. Then get credit reports and bank references, especially if the amounts involved will be significant. If you have late-paying customers, call to remind them their accounts are overdue. (You know what they say about squeaky wheels.) Switch perennial late payers to COD.
Beef Up Billing
Send bills as promptly as possible -- the sooner they’re in the mail, the sooner your billing cycle starts. Crunch some numbers to see whether it makes sense to offer early-pay discounts. Make sure your payment terms include a penalty charge for past-due amounts.
Resolve shipping and billing errors as quickly as possible so customers don’t delay payment, which could put the squeeze on your cash flow.
There’s another way a cash crunch could take a toll: Without cash on hand, you might have to pass up opportunities to grow your business.