Cash is the lifeblood of a business, regardless of the industry or type of operation. The cash flow needs to be steady and strong for a company to survive and grow. Is there a secret to maintaining a healthy, positive cash flow? Not reallyall it takes is an awareness of effective techniques and a consistent attention to detail. Here are some cash flow management tools that work: Sweep account. This is a service banks offer which lets you earn the maximum interest on all the money in your accounts, even if its just overnight, without penalties or concerns of bouncing checks. The system is set up so funds are automatically movedor sweptin and out of the appropriate accounts each day. This means, for example, that you can maintain a zero-balance checking account. With a sweep account, at the end of each day, any deposits to your checking account which are not needed to cover checks can be automatically applied to pay down your line of credit (or other loans); if the checking account balance is negative, money can be moved in from the line of credit to cover exactly what is needed, and no more. You can also link an interest-bearing savings account into a sweep program. Lockbox. Another bank service, a lockbox, works like this: your customers mail their payments to a post office box which your bank rents in your companys name. The bank sends a courier several times a day to clear out the box, checks are immediately deposited into your accountliterally within hours of their arrival in the mailand you get a report outlining all the transactions in as much detail as you want, as frequently as you want. As well as improving your cash flow, use of a lockbox can also reduce your staffs labor, since they no longer have to open that mail, sort the checks, and make sure payments are appropriately applied. If youre spending more than two hours a day picking up and sorting mail, making deposits, and posting receivables, you can probably benefit from a lockbox. Electronic payments. Talk to your banker about getting set up on a system that will allow you to receive payments electronically. This allows funds to be applied immediately and, as with a lockbox, eliminates the need for manual processing. Set and enforce payment terms. Be sure the payment due date is clearly and prominently indicated on your invoice. Follow up immediately when payments are not received on time. Invoice in a timely manner. Coordinate your billing system with your customers payable procedures. Candidly ask what you can do to ensure prompt payment; that may include confirming the correct billing address and finding out what documentation may be required to help the customer determine the validity of the invoice. Keep in mind that many large companies pay certain types of invoices on certain days of the month; find out if your customers do that, and schedule your invoices to arrive in time for the next payment cycle. If possible, bill on delivery of the product or servicethats when the appreciation of your work is highest. Dont pay until you have to. Its a common-sense tip that many people overlook: dont pay your bills until they are due. Unless theres an incentive to pay early, take the full term of your agreement. That lets you use your money for a longer period of time. Certainly take advantage of any early-payment or cash discounts your vendors might offer to save money, but if their terms are net 30, dont pay in 15. Keep that money in your account for another 10 days. Most computer accounting packages can be programmed to take maximum advantage of vendor terms, but you may need to monitor employees to make sure they are following through. The bottom line on cash flow is managing it. Pay attention not only to how much but also when the money comes in and out. Stand up for your rights with your customers and your banker. Insist that you be paid according to the agreed-on terms for your products and services. Demand that your bank deliver services that can help your company, and dont be afraid to negotiate rates. Shop around for the best banking arrangement. Dont stick with a bank just because youve been with them for years; make them earn the interest and fees youre paying. Look at it this way: by earning your business, theyre helping you build a company that can bring them even more businessand everyone wins. |
