When people think of cash flow, they see it as a simple process. After all, the word flow certainly seems to suggest that. It makes us think of rivers; of water travelling smoothly from one end to the other. And so, with cash flow, we imagine cash leaving the customer’s hand, going into the till, then going into a company bank account. Simple as that.
Except, you know, it’s totally not as simple as that. Cash flow often feels like a turbulent waterfall. (Which isn’t to suggest that you need millions of dollars for it to feel overwhelming!) It’s much harder to get to grips with than you might think. But not understanding and managing the cash flow in your business can leave you lagging behind. It could see you losing out on monetary opportunities.
Getting more strict with non-payment
One of the biggest stems in cash flow is late or non-existing payment. Go through your accounts books and see what I mean. A lot of businesses are willing to allow customers to pay when they can, as opposed to straight away. Some people think this is a foolish game to play in the first place. Me, I think it can be an excellent business practice if you play your cards right.
The problem? A lot of businesses aren’t playing their cards right. They have payment terms, but they don’t enforce them strictly enough. They’re not as disciplined as they should be. Don’t allow customers and clients to put off paying for so long. If it’s been too long and they’re really having difficulty, see if you can come to a compromise. Perhaps you could offer a discounted final payment?
Methods of payment
The less methods of payment you can accept, the more stymied your cash flow will be. You could have flocks of willing customers, but not everyone has cash on them when they need it. The fact is that customers expect to be able to pay with card at pretty much any establishment. If your business only accepts cash, then you should get started on being able to accept credit cards.
Of course, credit cards are only the start. These days, you also have to worry about contactless payment and mobile payment. There also seem to be new types of credit card all the time. Try to keep on top of it all. Oh, and don’t forget checks. People do still use them!
The categories of your cash flow
Just in case you thought you were starting to get cash flow, I’m going to throw a spanner in the works. Did you know that, in order to make everything as smooth as possible, you have to do deep cash flow analysis?
Your cash flow is less a single river and more a series of them. You have a lot of categories to consider when you’re analyzing your cash flow. You have to work out the difference between earning and cash – they often get mixed up. You have to work out your profitability with more techniques than simply assessing your net income. It’s not immediate, but if you do some more reading you’ll get the hang of it soon enough!