Well-managed cash flow is essential to business success


by Jean Voorhis, Commercial Product Manager for Pinnacle Financial Partners, and Joseph Watkins, Director of Cash Management Market Performance

Consistent and efficient cash flow is a necessity to keep a business running smoothly over time. Proactive management can help ensure funds are available for current needs, as well as long-term strategic plans. This concept is most noticeable when cash flow is tight, but it can be evident when cash is not being managed adequately in any direction.

The conundrum of cash flow management has stymied many entrepreneurs and disrupted even the most profitable businesses. So what can businesses do to promote healthy cash flow and stop worrying about whether there’s enough cash to cover operating expenses? and invest in long-term assets such as property, plant and equipment (PPT)?

A few guiding principles apply:

Knowing the timing is essential. The timing of receivables and payables is a delicate dance, and when they are out of sync, it affects cash flow. For example, during rapid growth, if a buying team buys too much inventory, cash can become tight. Likewise, if the Accounts Receivable team does not collect payments in a timely manner, this can also disrupt the balance.

Profit is not the same as cash volume. A company’s income statement can show healthy profits even when it burns funds on the cash flow statement, because the revenue numbers don’t reflect whether cash was received for all those sales. Having a constant overview of your company’s cash position and quickly managing any surplus or deficit is essential to maintaining stable liquidity.

Discipline is a virtue. Having frameworks in place to secure timely receivables and just-in-time payments is key to balancing cash flow. This is where a trusted advisor can help pave the way for better cash management.

Here’s what to look for:

  • Services that convert paper-based processes to electronic processes. This will speed up collections and delay debts until they are due.
    • The easier it is for people to pay your business (recurring payments, ACH/electronic funds transfer, credit and debit card payments), the sooner cash flows to the next obligation.
    • Look for tools that help you efficiently determine who paid you, how much, and why, easily matching bank transactions to your own records.
    • For businesses that receive payments by check, remote deposit capture tools can help make deposits from your office electronically. For large volumes of mailed payments, Vault services automate and expedite the collection and deposit of checks into your account by reducing mail and processing float.
    • Electronic payment methods allow your business to make just-in-time payments to suppliers and business partners to increase your working capital.
    • Wire transfers are another tool to speed up the inflow or outflow of debts or receivables.
  • Outbound payment scheduling options and commercial card services to expand working capital. You want maximum control over the payment schedule. Online banking allows you to strategically plan your electronic payments. Likewise, paying your suppliers by card will extend your Overdue Payment Business Days (DPO), allowing you to keep more cash on hand until your card statement clears.
  • A cash segmentation plan. Broadly speaking, you should have three segments in separate deposit account types:
    • Operating cash flow to meet impending debts
    • Set aside cash for additional liquidity and to cover short-term variations in cash requirements
    • Strategic cash for longer term liquidity outside of normal business operations.
      • Most banks offer a swipe service that ensures that any unused cash balance in your account is automatically and securely invested to increase overall returns or to pay down your line of credit, minimizing interest charges.

And last but not least, seek to communicate regularly with customers and suppliers to develop cooperative advantages. Some of the best solutions lie in partnerships forged by shared values ​​and working together toward mutually beneficial outcomes.


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