Improving cash flow is the key to successful business. Cash flow refers to the circulation of cash or its movement in and out of the business, inclusive of the payables and the receivables. Cash flow has significant effects on business decisions. So, what strategies should you resort to for cash flow improvement? It sounds quite complex, but it works simply if the basic strategies, enlisted below, are in place.
• Planning the business through specific periods.
• Cataloguing to keep records.
• Negotiate the payment terms
• Regular reviewing of accounts.
There are two important strategies that are fundamental to improving cash flows for a firm, whether an industry giant or a small enterprise.
1. Maintaining Cash Reserves
Unlike cash flows, cash reserves are the credit at hand which must be maintained by a firm as emergency funds. It serves as the backup credit source to cover all expected and unexpected costs in case of thinning of cash inflows due to any short run factors. Cash reserves also serve as necessary liquidity for potential investments created due to market fluctuations etc. Although, cash reserves are not a component of a firm’s cash flow cycle, but can be effective in maintaining it.
2. Putting Effective Cash Flow Management to Work
It is simple to have an effective cash flow management in practice, it requires answers to these simple questions:
• When, where and how cash payables will accrue?
• How would the unexpected cash needs be met?
• How will the cash inflows be distributed?
• Who will be the lender of the last resort?
In short, monitoring the cash flow circulation on regular basis and having a backup credit sources are the basic and most effective cash flow improvement strategies.