Cash flow management is crucial for small and medium-sized businesses because it directly affects their capacity to stay operational and grow over time.
Cash flow is the amount of cash coming into, and out of, your company, during a given period. Ideally, your organisation has a consistent supply of incoming cash or a positive cash flow. If you’re losing more money than you’re bringing in, you have negative cash flow, which is a significant indicator that your enterprise could be in serious trouble.
This article covers cash flow management, its importance, and tips to help businesses manage it successfully.

What is cash flow management?

Cash flow refers to the movement of money in or out of a business, organisation, or individual’s bank account. It represents the net increase or decrease in cash and cash equivalents during a specific period.
Cash flow management measures the amount of cash that comes in and goes out of a business over a set period and the methods used to control that flow to keep a business solvent. Negative cash flow means more money is going out of the business than coming in, making it difficult to pay bills, make purchases, or invest in growth opportunities. On the other hand, positive cash flow means cash is available to use as necessary.
Working capital refers to having accessible finances to pay all your responsibilities, and it allows firms to know exactly how much money they have at their disposal. The method and activities required to track your cash flow are called ‘management’.

Why is cash flow essential for your small businesses?

Cash flow management is essential to a business’s financial reporting and planning. It ensures the balance between money coming into the business, making sure it isn’t exceeded by money leaving the company. A positive cash flow allows for paying bills, investing in growth, responding to emergencies, and building a safety net. A small business can survive and grow more with good cash flow.
Cash flow might indicate your company’s health and long-term performance more accurately than revenue or profit. Why? Because you cannot continue day-to-day business operations without a positive cash stream.

How can you better manage your small business cash?

Managing cash flow is critical to the running of a business. Regularly confirming that cash is flowing through the company and leaving your accounts balanced positively enables vital decisions on spending.

1. Maintaining liquidity: As a small business owner, you must ensure sufficient funds to cover your expenses, such as paying suppliers, staff, and bills, to run your business smoothly. Effectively managing your cash flow is vital to avoid any financial hiccups and fulfil your financial responsibilities without any obstacles.

2. Planning for the future: Planning for your financial future is crucial. Forecasting your cash inflows and outflows is an effective way to do this. By anticipating any potential financial gaps, you can proactively take preventative measures to avoid any issues before they arise. Don’t wait until it’s too late – start planning for your financial success today!

3. Managing growth: Cash flow is critical for growing small businesses. To achieve this, it is essential to carefully time cash inflows and outflows while keeping a close eye on inventory levels and expenses. By doing so, businesses can effectively fund their expansion plans and ensure continued success.

4. Improving financial health: Small businesses can improve their financial health by managing their cash flow effectively. This can be achieved by reducing the risk of default, improving creditworthiness, and increasing profitability. As a result, they can have greater access to financing and lower borrowing costs over time.

5. Making informed decisions: Make informed decisions about investments, financing, and other financial matters by understanding their cash flow. With a clear understanding of their available cash, they can determine whether they have enough funds to pursue growth opportunities or need to wait until they have more money. This knowledge is crucial in helping them make sound business decisions.

Tips for the management of cash flow

Cash flow management is critical for the success of any business, regardless of its size or industry. Here are some tips to help you effectively manage your cash flow:

1. Create a cash flow forecast: Creating a cash flow forecast is essential in anticipating your cash inflows and outflows during a specific period. By analysing past data, market trends, and other relevant factors, you can generate a forecast that can assist you in making sound financial decisions.

2. Ensure bookkeeping is up to date: Accurate and up-to-date cash flow reports rely heavily on the information obtained from bookkeeping. By standardising bookkeeping and making it a regular habit, businesses can ensure that the information used to manage cash flow is reliable and make informed decisions based on it – a significant first step towards producing high-quality reports.

3. Streamline your payment processes: Make sure your payment processes are streamlined to avoid delays in customer payments. Whether you’re an SME owner with no accounting experience or a finance specialist, plenty of cash flow software is available to make your processes more efficient. As well as offering improved accuracy, using app or internet-based tools makes it simple for you and your staff to log on and send invoices from any location. Why not use small business accounting software to automate invoicing and payment processing?

4. Generate regular statements for good visibility: As a business changes month to month, so does the cash flow. For example, cash flow in seasonal months may differ from cash flow in months predicted to have low sales. Regular statements help build up a complete cash flow history for the business. This process helps analyse information and predict future finances to inform business planning.

In summary

Small businesses must manage their cash flow carefully to maintain liquidity, plan for the future, manage growth and improve their financial health. Failing to do so can lead to serious financial problems and even bankruptcy.

You need to be able to spot early warning signs, such as a recent drop in a customer’s credit score. Acting fast can reduce the chances of repercussions, such as a lower credit score for your business or damage to your reputation if you can’t meet your own payments.

CoCredo offers many UK and Ireland Company Credit reports that provide thorough, trustworthy, and critical business credit check data. These reports give you the assurance you need to safeguard your business against any financial risks that may be harmful.

CoCredo are an Esker Partner

Esker UK

Unlocking Positive-Sum Growth with AI-Driven Business Solutions for P2P & O2C Cycles

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We are over half of the way thorough 2022. It’s nearly a year since I wrote my last blog which looked at new features in O2C. 2022 seems to be going faster than ever, and I feel that the world is getting back to some sort of normality. My diary has certainly been filled with web meetings but I have ventured out on the M40 motorway on a couple of occasions. I enjoy meeting people for real and taking a break from the web cam. It’s a shame however, that the traffic has returned to its terrible pre-Covid levels.

Cashing in with new automation features

2022 has been a busy, interesting, and sometimes challenging year. We continue to go-live with a number of projects but I have certainly found that the popularity of our cash solutions has increased across Credit Management, cash Collection Management and Cash Application processes. My last blog talked about the number of ‘under the hood’ features that I have found with our Order Management solution. The same is true for our ‘cash solutions’ which are now fully integrated, giving our customers an end-to-end O2C solution. The list below is certainly not exhaustive, but I have seen some key changes and improvements in the following areas;

Credit Management – Enhanced workflow rules and mobile approval capabilities for customer onboarding.
Collections Management – Salesforce integration, improved views of historical (and future) ageing information and a projected view of future collection activities.
Cash Application – Enhanced discount handling, seamless SAP connectivity and enhanced templates for more efficient customer communication.

The above features are certainly creating a buzz and I’m excited to see further changes. Customers can check out the ‘What’s New’ section in our product documentation.

On a personal note, I am delighted to be starting a new position within Esker. From the 1^st July 2022, I have taken up the position of Sales Manager and have responsibilities for our expanding UK team and a handful of key customers. I look forward to a new challenge after over 15-years of direct sales.

If you’d like to learn more about using Esker’s solutions to improve your O2C processes with automation, please contact me and my team – we’d love to help.

Paul Stevens

Paul is the Sales Manager for Esker UK. He has been part of the Esker family since 2006.

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1. Make it easier for your customer to do business with you
   Offering multiple payment methods — such as credit cards and automatic payments, or an online option for customers to view invoices and statements — provides greater flexibility for the customer and improved cash flow for you. Are you making it easy for your customers to pay and communicate with you?
   
   
2. Tighten up your credit approval
   Are you performing credit evaluations on all new customers? Is your credit policy appropriate and followed by your sales department? Does your customer service department flag new orders that do not have a completed credit application? Do you update credit information on a regular basis?
   
   
3. Sharpen your invoicing process
   Are your invoices accurate and sent on time? Are payment terms and due dates clearly written on invoices and any other communication sent out to the customer? Have billing addresses and accounts payable email addresses been verified before bills are sent out? Do you provide incentives for early payment? Are you sending out automated payment reminders.
   
   
4. Utilise reporting and get to the bottom of root causes
   Are you measuring performance against goals? Do you regularly review aging reports? Are you reporting on collections forecasting? Do you have an understanding as to why customers are paying late (e.g., invoice discrepancies, product issues, etc.)?
   
   
5. Effective and efficient collections
   Do you have a collections process in place? Do employees have the tools they need to prioritise, call and email collection efforts? Do they have enough time to follow up on all past-due accounts? Are they able to efficiently keep sales and customer service in the loop on disputed invoices? Do you consistently follow up on customer disputes and late payments?
   
   
6. Incentivise your customers
   Do you offer incentives, such as early payment discounts? For example, you could offer a discount for paying within 10 days when your payment terms are net 30 days. This discount can be offset by speeding up cash flow, savings on loan fees and discounts from creditors.
   
   
7. Know when to walk away
   No one wants to walk away from a customer, but do you know which customers are routinely inconsistent, unresponsive or continually paying invoices late, despite offering outstanding services? Has your company considered dropping bad customers from your business list? DSO increases are often driven by a few large customers. Has your collection team worked closely with those customers to understand what is driving delays?

DSO is the most commonly used metric utilised by credit and AR professionals to analyse the success of their collection efforts. The more quickly you collect, the better your cash flow situation will be … and even a small improvement to reduce DSO can go a long way!

For even more ways to improve your cashflow situation download our free eBook:
8 Accounts Receivable Management Strategies to make your process Best-In-Class

Or visit our website for more information about our Order-to-Cash solutions.
Or feel free to contact us; our O2C experts would love to help you to transform your O2C processes.

Claire Barker

As Marketing Specialist for Esker UK, Claire is responsible for generating leads for Esker's business process solutions specifically within the area of Accounts Receivable through a variety of marketing channels. She has been part of the Esker family since 2019.

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• 24/7 SOLUTION AVAILABILITY that’s not location dependent is guaranteed to support all customers, suppliers & partners remotely — all that’s needed is a web browser!
• MOBILE CAPABILITIES enable users to access the solution & continue working at any time — whether doing P2P or O2C activities — even when not at their desks.
• WEB PORTALS allow users to actively engage with customers & suppliers. From acknowledging new orders to dispute resolution to invoice follow-up, collaboration can be achieved via a customisable dashboard.
• PLATFORM SECURITY is ensured through continuous security validations & certifications, including ISO 27001, SOC 1® Type 2 (SSAE 18 & ISAE 3402), HIPAA & HITECH, etc.
• CONTINUOUS UPDATES are made to the solution (e.g., new features & enhancements) with no allocated time or resources required.
• MAIL SERVICES enable users to mail documents directly from the cloud with the touch of a button & 100% compatibility from wherever or whenever they’re working

Worried about remote implementation? Don’t be. Best in class automation solution providers use agile methodologies combined with constant communication to allow remote implementation to be pursued seamlessly from beginning to end.

THE BENEFITS OF AUTOMATION

The advantages of automation are clear:

• IMPROVED EFFICIENCY & COLLABORATION
  Automation breaks down the traditional P2P and O2C silos affecting supply chain efficiency through greater speed, accuracy, and information sharing and collaboration.

• INCREASED WORKING CAPITAL
  The cumulative effect of increased savings, productivity, visibility and collaboration within the supply chain all add up to what matters most — optimised working capital and cash flow.

• STAFF EMPOWERMENT & ACCOUNTABILITY
  Fewer manual tasks means team members have greater autonomy over their daily activities and more time to focus on issues that impact customers, suppliers and the organisation.

• IMPROVED RELATIONSHIPS
  When payments are made quickly, orders are delivered on time and cash collection is painless, the result is improved relationships with your most strategic customers and suppliers.

• “FUTURE-PROOF” GROWTH
  Automation serves as a digital foundation for companies to prosper in any economic environment thanks to end-to-end connectivity, fewer technological restraints, and strengthened global security and compliance.

• GREATER VISIBILITY & OVERSIGHT
  Cash flow can always be top of mind thanks to instant access into any order, invoice, etc., customisable KPIs for P2P and O2C reporting, and a complete audit trail recorded.

• COST SAVINGS
  From “hard” savings on supplies, equipment and processing costs to “soft” savings resulting from increased productivity, higher staff retention and lower customer churn, automation equals significant savings.

• SIMPLIFIED IT ENVIRONMENT
  Thanks to continuous software upgrades and system consolidation, businesses need fewer resources to govern their IT environment.

ESKER CAN HELP

If you’d like to read more, download our eBook today, or visit our website for more information.

Esker can help your organisation to automate end-to-end supply chain processes and optimise cash flow. Transformative advantages to make your organisation stand out from the crowd.

Talk to us today, we’d love to hear from you.

Amy Rees

As Digital Marketing Administrator at Esker Northern Europe, Amy spends her time working on the website, writing and publishing blogs and social media content, and publishing collateral. She has been part of the Esker family since 2014.

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