Areas to Control A-G



Control - Cash flow

What is Cash and Cash Flow?
Cash can be defined as ready money or money (its equivalent such as a check) paid for goods and services from a supplier. Cash is referred to as legal currency and is the resource itself. Cash flow, on the other hand, is a measure of activity of cash or the method by which cash is tracked.

You can spend cash, but you can’t spend cash flow. Cash flow is typically measured by analysing the amounts of cash coming in against the amounts of cash going out. It is simply a process which outlines the cash coming into the business from sources such as sales or other revenue generating methods and then tracking where and how that cash is spent when it is


Control Cash Flow Problems
Cash flow problems are responsible for many business failures. This is especially so in the first few years of the life of your business. Cash flow is the movement of money within the business involving both income and expenses. It is the key for growth as well as survival. The poor management of cash flow has in the past as well as currently put an end to many potentially successful operations.

No one is safe from the dangers of cash flow problems, so make sure your business develops and maintains a health cash flow at all times. It is the only way that dangers posed from lack of cash can be avoided.


The Importance of Managing Your Cash
Cash flow is the lifeblood of any business. It comes from sales of products and services, collections of accounts due in and sale of assets. Cash flowing out is involved with costs of running the business, as well as payment of debt the business owes.

The goal of good cash flow management is to make sure that there is enough cash on hand whenever the business needs it. While this appears to be simple, in practice it is something that many business owners do not put enough emphasis on.

Most businesses do not realise how serious managing cash is. They operate on the basis that as long as the money is coming in and there is enough to pay the bills at any time, that’s all that is needed and they don’t give cash management a second thought. This, however, leaves the business in all sorts of potential danger.

The business needs to manage its cash in such a way that there is enough for current needs as well as future needs, plus leaving a reserve for any unexpected situations that may arise. A shortage of cash will affect the survival of the business and in extreme circumstances cause financial embarrassment and possibly bankruptcy or liquidation.


10 Ways to Control Your Cash Flow
The following are 10 tips to improve your cash flow:

  1. Put in place sound collection practices.
    Make sure you keep on top of collecting the amount of money owing to you by customers.

  2. Send invoices promptly.
    The faster you send out your invoices, the faster you will be paid.

  3. Offer discounts.
    Encourage customers to pay their accounts sooner by giving them a discount.

  4. Send orders out correctly.
    Make sure the orders sent are accurate according to the customers’ requirements; otherwise problems arising from delivery can cause accounts to be paid late.

  5. Have accurate invoices.
    Before you sent out your invoices, make sure they are accurate otherwise this will delay your customers paying their accounts on time.

  6. Bank money promptly.
    As soon as a payment is received, don’t let it sit around in your desk, but put it straight into the bank – this will reduce the interest charged by the bank and the sooner it goes in, the sooner it is available to be used in the business.

  7. Find good payment terms.
    Ask your suppliers for better payment terms so that you have 60 or 90 days to pay your bills. This will preserve your cash and can assist cash flow substantially.

  8. Watch stock levels.
    Don’t allow too much cash to be tied up in stocks that are at higher levels than required. Stock should not be sitting on the shelves – they should be out being converted into cash.

  9. Reduce costs.
    Assess all expenditure of the business and slash those costs which are unnecessarily high, or totally cancel others which are not required at all.

  10. Focus on overdue accounts.
    Make sure that overdue customers are called up and personally request them to clear their accounts with you. If you have any customers who are finding it hard to pay their accounts, try to get a small portion from them every week. It is better to get the cash flow coming in, rather than asking them to pay a large amount at a later date.