Did you know what is the most underrated, yet perilous financial problem a small business has to face? No, it’s not a lack of profit; it’s the lack of cash flow.
If you are a small business owner starting your business ground up, I’m sure you have realized that cash flow is king. You see, your business can be profitable, but with poor cash flow, you could have a big problem.
Cash flow, to put it simply, is the cash you have in hand. If you don’t have the cash in hand, how can you pay your staff’s salaries or your suppliers? How can you launch a marketing campaign? How can you support your entire business operation?
Sure, you could say that a small business loan can help with cash flow in the short term, but that doesn’t solve your cash flow problem. You need to attack the root of all of your problems, namely accounts payable and accounts receivable.
Quite simply, accounts payable (AP) is the amount you need to pay to your suppliers within the due dates. Accounts receivable (AR), on the other hand, is the amount you will receive from your clients at the due dates.
In order to keep your business’ cash flow healthy, you need to juggle between your AP and AR. The whole idea is to make sure that before the due dates of your payables arrive, you have enough cash in your business account to pay them in full.
However, things are not that simple: It’s quite challenging to keep your AR in check, for one reason or another. Some things to keep in mind that make cash flow harder to manage are late payments and clients’ requests for payment deadline extensions, clients’ request for payment deadline extension, and so on.
Fortunately, there are some ways to make sure that you can maximize your cash flow. The key here is to better-organize your AP and AR.
This infographic from CitizensBank.com can offer you some tips on how to better manage your AP and AR:
To recap, you need to plan your accounts payable and accounts receivable carefully. You should use the available tools, such as credit card processing and billing software, to help you streamline everything. You should also negotiate on the terms of the payables and receivables, in such a way that you can avoid potential deadlocks with your cash flow.
As you can see, you don’t have to sell more to generate more cash. Putting the tips from the infographic into practice can help you generating cash – and do more with it to increase your leverage, such as purchasing inventories and equipments.