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

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The partnership is a big step towards improving automated credit solutions and recommending appropriate credit limits and terms based on each customer’s unique situation. This will help businesses manage risk and ensure revenue through Esker’s user-friendly digital platform.

“CoCredo is delighted to become a strategic partner with Esker bringing together a wealth of expertise to create pioneering solutions in assisting businesses to drive profitability, avoid adverse risk, and increase efficiency that meets the evolving needs of our customers.”

Read full press release here.

Esker UK

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With a global background in software including both the automotive and healthcare industries, Matt also has a wealth of experience in business process automation, which he continues to develop with Esker.

“I’m delighted to be part of the Esker team and continue the great work in delighting customers with successful outcomes through the digital transformation of manual processes with finance and customer service”, said Tipper.

As Partner Manager for Northern Europe, Matt’s goal is to support Esker’s partners, from global accountancy, analyst and advisory firms to small boutique or specialist consultants, system integrators and technical partners, in their product cycle, implementation and support of Esker’s Procure-to-Pay and Order-to-Cash solutions.

Tipper continued: “Esker are perfectly positioned to help grow our partnership offering. Our global presence means we can lean on the experience gained in over 35 years of digital transformation all over the world.”

Please click here to learn more about Esker’s partnership program.

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Esker, a worldwide leader in AI-driven process automation solutions and pioneer in cloud computing, and Birlasoft Ltd. [BSE: 532400, NSE: BSOFT], a global enterprise digital and IT services company, team up to offer Esker’s comprehensive suite of Procure-to-Pay (P2P) and Order-to-Cash (O2C) automation solutions to enterprises globally.

For more than 30 years, companies around the world have trusted Birlasoft to find, implement and manage the technologies they need to keep business running smoothly. Many new and long-standing customers have turned to Birlasoft to support digital transformation efforts.

“Birlasoft’s expertise and reputation within the industry make them an ideal partner for Esker, especially during a time when so many businesses are embracing greater digital transformation to empower a remote workforce,” said Steve Smith, U.S. Chief Operating Officer, Esker. “Their global presence will help us deliver increased visibility and bottom-line savings for more businesses through automation of the full cash conversion cycle.”

Birlasoft will serve as a premiere implementation partner for Esker’s P2P and O2C solutions. With a large footprint in the manufacturing space, most of Birlasoft’s customers have unique requirements around their enterprise resource planning (ERP) tools. As a partner for all of the major ERP systems, such as SAP®, Oracle® and Infor®, Birlasoft is particularly well equipped to address these needs — especially now that the company can offer Esker as an end-to-end solution that acts as an extension of the ERP.

“Esker plays an important role as a partner in accelerating the transformation of core business processes of our customers,” said Ajit Singh Chawla, Global Head, Digital Business Unit, Birlasoft. “Esker’s fully built-out ERP connectivity suite includes SAP, Oracle EBS and JD Edwards, and complements Birlasoft’s ERP expertise very well.”

Esker’s relationship with Birlasoft started when a leading medical equipment manufacturer and Birlasoft customer sought a solution that could automate its invoicing, accounts payable and order management processes. The customer was moving away from its legacy ERP system and needed to automate both its P2P and O2C processes — while reducing overall IT spend.
Birlasoft identified Esker for its AI-driven solution that could quickly remove inefficiencies and redundancies, working with the new global ERP systems.

Read full press release here.

Esker UK

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

Read more insights from Esker UK