Managing the cash flow gap
Just as a cash flow budget offers insight into the money coming into and out of your business on a weekly or monthly basis, it can also predict your business’s cash flow gaps, those times when there is not enough money coming in to cover the money going out.
A healthy cash flow is essential to any successful business. If you want to remain in operation, it’s crucial you manage your accounts payable well enough to ensure you can pay your creditors, suppliers and employees on time. Equally important is invoicing your customers timeously and managing accounts receivables closely.
From a cash flow perspective, there are two valuable schedules to monitor:
- Your accounts receivable schedule – this will highlight those sales that you haven’t yet been paid for and when you can expect to receive settlement. Worse case, unpaid accounts can leave the business without any cash to cover expenses. More commonly though, delays in recovering these accounts cause cash shortages, making it harder for the business to meet cash outflows when they fall due.
- Your accounts payable schedule – this will help you determine how well you are managing your cash outflows. It provides visibility into when outgoing payments fall due for the current period and indicates how much cash will be required to cover those bills during the same period.
Taken together, these two schedules can enable a business to predict any likely cash flow gaps early enough to take proactive cash flow management steps to ensure that the gaps are closed or at least narrowed when the time comes.
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Handy strategies to shorten the cash gaps in your business
- Require partial or full payment on contract to be paid upfront.
- Finish projects as quickly as feasible so that they can be invoiced.
- Invoice immediately on completion of the job.
- Systemise invoicing process.
- Complete the invoicing process on a weekly basis.
- Offer 1 to 2% discount for early payment of invoices.
If you would like to find out more about managing the all-important numbers in your business, book your complimentary coaching session today.
