Why cash management is important

Using historical cash flow statements helps keep track of how money was used. Keeping track of how cash was used in the past and knowing your current liquidity, will allow you to make long strides in managing cash flow.

Knowing where your cash comes from and goes to is vital to being able to manage your available cash. This is essential in managing cash flow both in the short and long term. Ensuring that outstanding debts are managed cuts down on cash shortages. Making wise investment decisions allows cash to be available when it is needed. If you tie up cash in long term stock it is not available to invest in something short term with a good ROI.

Also, ensuring that you pay your payables on time keeps cash flow of suppliers moving, and prevents them from increasing your prices of necessary items. By managing your cash flow properly you help to ensure that the economy runs smoother for everyone. The largest goal of good cash management systems is to reduce or eliminate any surprises when meeting cash requirements.

Good cash management influences the efficiency of operations and reduces overall cost of doing business. Category: Small Business. Blog Contact Login. PHONE Importance of Cash Management April 9, by Ed Becker Cash management and cash flow are two of the scariest things for any business to control. Most debit and credit transactions made through the ACH will clear that same day. Organizations that create these transactions are called ACH Originators. An example would be an employer offering payroll Direct Deposit.

Carl Powers has been a banking professional for 29 years. Carl recently met with a business owner, and after several discussions, the owner decided to establish a business deposit relationship. The Challenge The owner needed to make the business banking process more convenient than the other current banking partners which were more conveniently located.

Given the nature of the business, the owner needed to reduce the amount of travel and time away from the office to make deposits. After this detailed analysis was completed, and after the comparison was presented, the business owner was finally aware of how their expenses were determined and what the potential savings could be. Click here to learn more about the business services that we offer. While many business owners keep a close eye on cash flow, a sudden financial shock — like a client going out of business or machinery breaking down — can quickly put you in the red.

If your own finances are robust, you should be able to secure cash flow loans or finance for new equipment. Many vendors offer early payment discounts, helping to ensure their own cash flow health and giving you a financial advantage.

With a positive cash flow, managing your costs will be simple. Every business wants to generate more revenue, but it pays to be strategic. Think about your pricing, promotions and whether you could diversify into other markets. Concentrate on improving the quality of your product or service too, and invest in marketing and customer service to build brand loyalty with existing clients.

With a high customer turnover your income could vary greatly each month, while businesses with returning trade can forecast more accurately.

Make use of credit checking services, such as Experian Business Express , to reduce your financial risk before entering into any new professional relationships. If you rent office space or other premises, negotiate better rates with your landlord and other suppliers. Below are 10 simple tools for SMEs that help to tackle some of the cash flow problems a business might experience. This is the foundation of any enterprise. By doing this you can easily see whether your cash flow is predicted to be positive or negative and can adapt your plans accordingly.

Tracking your business against your own historic performance and industry competitors will also help to give a wider understanding of your projected cash flow. Business expenses can soon build up, particularly as you grow and hire more staff. Some key areas to focus on include:. A robust credit control system is vital to maintaining a healthy cash flow, speeding up the rate that any monies owed is received and reducing the risk of late payments.

Credit control systems are only effective when finance staff are fully trained on the importance of payments. Beyond this level of direct financial training, keeping staff well-skilled in their area of expertise can also help to drive efficiency and lower costs for your business overall.

Operating with a diverse product range can help to grow more revenue streams and reduce your financial risk. Businesses with just one revenue stream can quickly fail if their chosen industry or offering hits financial problems. Food, fashion and interior design, in particular, see short-lived trends — the question is, how can you make the most of them without falling behind as they change?

As well as offering improved accuracy, using app or internet-based tools makes it simple for you and your staff to log on and send invoices from any location. Tensions can rise when dealing with business finances but maintaining good relationships can help build positive cash flow in the long run. Suppliers, lenders and clients are integral to a healthy cash flow, and by keeping on good terms it increases the likelihood of payments being made on time, or for flexible terms to be negotiated when needed.