Manage Your Business Cash Flow

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In any medium size business, a very high rate of attention is concentrated on the cash flow.

Why?

Because the cash flow is the heart of the business, and as any other "heart", it sustains the business.

Business owners realize the importance of a positive cash balance in their business. In this positive situation all decision like staff, systems, marketing, finances are much easier to take. The investment has been made, the forecast of profit is very good, and the business already has some funds available.

Anyway, the management of cash remains the biggest problem in a business.

The key aspects of cash management are the cash receivable from customers for sales, services and so on and cash payable to suppliers for payments. In many situations this funds that cycle around you are the most important elements of the cash flow.

This is a fact that is recognized by most business owners, however they are not always prompt in taking some measures to properly control these cash movements.

For many small or medium businesses, credit management is a part-time activity or may not exist at all. The opportunist debtor will use this against you, he will seize the chance to delay terms of his debt payments. This is a common practice on the business market because both parties accept that payment terms will always be delayed.

Why is such an environment accepted by business owners?

None of the business owners will underestimate the need to have cash inflows, however due the lack of preparation in collecting the debt or the fear of losing a potential customer timeliness of those inflows will all too often be delayed.

A delay in securing payments on time will have a strong impact over the cash flow, will increase the working capital, and increase costs. The often overlooked costs of late payment can destroy the future of your business.

A short fall of the cash flow may risk the ability of the business to pay it's creditors with the stabilized terms of contracts.

The creditors should lax their credit management and delay settlement until such time that the debtor cash has been received.

But not all creditors are prepared to accept this kind of settlements. credit limits may be reduced or withdrawn and until settlement is done deliveries of new orders may be delayed. In these situations the business owners must find other funding sources to cover the timing difference between cash payments to creditors and late cash receipts from debtors.

A single situation may be manageable, but repeated may become a heavy weight for the business. As the business grows the cash flow amplifies and the gaps that appear are bigger and bigger.

All business owners agree that without cash there won't be any business, however, its continual recognition in the daily management of the business is not always so evident.

An unmanaged cash flow environment will increase the time spent by the business owner working "in" the business on cash management activities. Time should be devoted to working "on" the business generating growth to secure its future.

Article Source: http://depositarticles.com/

Brad Griffin is an Accountant and CPA. I am now sharing my cash flow knowledge and success trading options at my website www.indexspreadoptionstrading.com.

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