How Your Business Can Use Cash Flow Management Tactics

Editor's Note: Take a look at our featured best practice, Monthly Rolling Cash Flow Projection Excel Model (Excel workbook). Monthly Rolling Cash Flow Projection is crucial for businesses as it offers a real-time view of their financial health. By forecasting incoming and outgoing cash, it enables proactive management of liquidity, preventing potential crises. This tool helps in identifying trends, anticipating [read more]

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They say smart businesses stay on top of cash flow.

Cash flow problems are natural speed bumps along the long winding road of business ownership. That said, like fuel to a car, when left unfilled your operation comes to a screeching halt, leaving you (the owner) in turmoil and liable for your business’s failings.

But what does cash flow management mean? Why is it so important? And how do you apply these tactics to your business? This is a broad, but essential task that we aim to make clear.

What Is Cash Flow Management and Why Does It Matter?

Cash flow management is a term that refers to the continuous stream of incoming and outgoing cash throughout your business. If you have more money coming in than going out, great — this is the aim of the game. But if your cash flow is the other way around (more money is going out than coming in) then you likely have a problem to solve.

Practicing good cash flow management is key for your business’s success because it means you can repay investors, meet expenses, and grow the operation. Without generating an adequate cash flow, however, carrying out basic day-to-day responsibilities like paying suppliers, buying materials, and affording employee salaries will prove impossible.

With this in mind, cash flow management might be the most important aspect of running any business. After all, cash is the fuel that keeps the cogs whirring (see here for a handy infographic by Invoicera).

What Does Effective Cash Flow Management Look Like?

Good cash flow management strategies might look a little like these four steps:

1. Deferring tax payments
2. Monitoring travel expenditure
3. Delaying payments to vendors
4. Using government loan schemes

With the steps in mind, this section looks to explore strategies your business can adopt to conduct better cash flow management when funds are running low.

1. Monitoring Travel Expenditure with Fuel Cards

Rely on vehicles to run your business? Fuel is likely an expensive, yet unavoidable cost. That said, many companies use fuel cards to ensure the cash keeps flowing…

These tools are credit cards for fuel (and forecourt) purchases that provide immediate access to the cash you need. The BP fuel card is a popular example that allows you to track expenditure on the road, but you can also view a range of similar options at iCompario — this way you can tailor the card to your business needs and current cash flow situation.

2. Deferring Tax Payments to Free Immediate Funds

Taxes are inevitable, but when your business is experiencing cash flow problems you can defer payments and use these funds to pay immediate expenses.

Note that during the pandemic many national governments have been particularly lenient when it comes to deferring tax payments, though these schemes change regularly — so it’s worth staying updated by checking for updates using official government websites.

3. Delaying Payments to Vendors to Keep Cash in Your Account

Your relationship with vendors is an important one to nurture. After all, building strong relationships can result in favorable fees and express delivery. That said, for the purpose of cash flow management you should explore payment options — or more specifically, how long you have to make payments without incurring late fees and ruining the relationship.

4. Using Government Loan Schemes to Improve Long Term Cash Flow

The majority of businesses fail because they run out of cash, which is why applying for government loan schemes can prove to be a valuable investment, especially when looking to ride the natural pitfalls of running your business.

While the idea of starting a business already in debt isn’t likely an appealing one, government loans are an effective way to support your organization. After all, they provide an injection of cash, with often reasonable repayment rates, that gives your business a solid footing to begin expanding and thriving.

Smart businesses certainly stay on top of cash flow. Why? Because it ensures that you’re able to cover your responsibilities and essential payments to keep the operation going. From monitoring your travel expenditure to applying for government-aided loans — this is how your business can use cash flow management tactics.

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