We have written many blogs on the importance of cash flow, but there are a couple of cash flow errors that are not often mentioned. These are not centered on an inability to pay bills; rather it involves fiscal decisions that complicate one’s ability to manage cash flow correctly. Consider these three questions when if comes to company cash flow. 
Do you ever pay bills before they are due to be paid? This may seem like a sensible decision, but unless there is an incentive to do so, for example a supplier discount, all you are doing is compromising your cash flow, and boosting the cash flow of your supplier, or other provider. Cash is king when it comes to your balance sheet, so why create the potential for a cash flow crisis just to try and get ahead of the game? It is important to keep your credit score as high as possible, but it is also important to keep your disposable cash flow as high as possible. Paying bills on time is a different matter. Prompt, timely payment will benefit the credit score of your company and keep operations running smoothly. Sensible cash flow forecasting will help make the difference.
Do you have a tight handle on your AR? Irregular monitoring of your accounts receivable means you are not always on top of late payments. If your customer thinks they can get away with paying late it will become a habit. When it comes to AR, continuous review means you know exactly where your company stands when it comes to customer payment. Keeping the payment process moving is a key component to good cash flow management. It is worth considering offering incentives to encourage your customers to pay their invoices faster. Similarly, it is too easy to want to close the deal with an influential customer by offering terms without checking on their ability to pay. Don’t let large customers bully you into offering terms.
Do you monitor your business expenses? In periods of success, it is easy to give in to excess and spend more than necessary. All expenses should be monitored and justified. It is worth erring on the side of caution. Tracking expenses every month allows you to make the best financial decisions, as well as keep on top of tax deductions. Don’t miss out on tax breaks as a result of sloppy bookkeeping. So what are the monthly expenses that are particularly important?
- Salaries, including benefits
- Marketing and advertising costs
- Company insurance
- Brick and mortar costs
- Travel and entertainment expenses
Monitoring bill payment, managing AR and keeping track of business expenses are important elements of excellent cash flow management. Don’t let the details fall through the cracks. There is nothing more relevant than the famous Benjamin Franklin quote, “watch the pennies and the dollars will take care of themselves.”
