Cash flow management is crucial in any small business, and how it’s managed can determine your business’s success. A sufficient cash reserve will ensure on-time payments to your suppliers, employees, and other vendors.

As well as increasing revenue and profit, businesses can add to their bottom line by investing money back into the business.

Here are some ways that cash flow management can affect business, as well as good management tips.

  • Have the Right Accounting System to Improve Cash Flow Management

Use quality accounting software to keep track of your cash position and forecast your cash flow. By using invoice software, you can bill clients directly after they have completed a job, send payment reminders, and allow for one-click payments. It’s imperative that you know where your cash flow is going every step of the way. Hire an accountant if you aren’t confident with numbers.

  • Send Invoices As Soon As Possible

It may sound obvious – but sending your invoices earlier means receiving the money quicker. Send invoices immediately to ensure a continuous flow of income throughout the month.

An option to ensure that payments are made on time is to offer discounts to clients who pay their bills quickly.

  • Keep Accurate and Detailed Records of Your Cash Flow Management

You should always be able to see your business’s financial state immediately. Doing so will require keeping your records updated as often as possible.

Keep track of all payments, bank statements, and bills for all customer sales. You should also keep track of all expenditures, such as vendor and supplier purchases and payroll.

Regularly pay attention to your profit and loss account (aka an income statement) to ensure profitability.

Plan an hour or two each week to work on your financial forecasts.

  • Offer Different Payment Options to Improve Cash Flow Management

Make it as easy as possible for your clients to pay their invoices. The adage – time is money is applicable here. The longer it takes your clients to pay their invoices due to complex payment requirements, the longer you will wait for your money.

  • Keep Track of Client Accounts

This tip goes hand in hand with keeping accurate records. Ensure you are always aware of how much your clients still owe. Regularly send reminders if clients don’t pay their invoices on time.

You may need to impose interest charges on difficult or slow clients outlined in a formal credit policy outlining the borrowing terms.

Also read: Choosing The Right Small Business Accountant.

  • Separate Business and Personal Finances

Needing a clear look at your business’ performance requires keeping your personal and business finances separate. This way, you won’t have to go sifting through your bank records for business transactions. Keeping these separate will simplify tracking and indicate patterns in your cash flow.

  • Schedule Payments Effectively

If you aren’t breaking any rules or hurting a business relationship, delay the payment for as long as possible. Plan your payments so you have enough cash to make payments on time without incurring late fees. Delaying payment of bills until the due date can increase available money, which you can use for payroll or taxes.

  • Map Your Patterns and Cycles of Cash Flow Management

Cash flow projections are vital for small business owners, as they offer an early warning of potential problems before they happen. Establish a cash flow forecast to help you make intelligent decisions and estimates.

It is also important to consider upcoming cash outlays such as rent, inventory, salaries, benefits, taxes, office supplies, and advertising.

  • Manage Inventory Efficiently

Check your inventory to identify products that aren’t selling well, as they hinder your cash flow. The money you spent on them isn’t converting into sales.

Selling less frequently purchased items for discounted prices can help reduce this cash flow issue, as can investing more in stocking items that sell well.

  • Ensure You Have a Cash Reserve

To prepare for emergencies, keep three months’ worth of expenses in the bank to fund your working capital needs.

It is essential to have a backup of some kind. You might have to use your personal funds or get an overdraft or revolving credit line.

Also read: 5 Financial Mistakes Your Small Business Might Be Making

As the primary means of paying for goods and services, cash keeps your business liquid. Proper cash flow management allows you to monitor your cash flow and evaluate whether you are using it appropriately. Cash may be king, but make it work for you by following the tips above.