Managing cash flow is one of the key metrics that can make or break a business. It is reported that more than 82% of businesses fail because of poor mismanagement of cash flow. The financial market is volatile and while every business owner wishes to never run into any financial trouble, it is a farfetched thought. Mismanagement of cash flow can have severe implications on the business' working capital and the company can soon find itself in the pits of debt or under a mountain of loans. To avoid such a predicament, it is necessary to monitor the cash flow from an early stage and keep a track of all incoming, outgoing, and unchartered expenses that might come along the way.
Without a steady cash flow rolling in and out of your business, it is impossible to understand the financial health of your business and predict trends for future budgets or revenue. It is important to regularly audit your company's incoming and outgoing cash to generate a financial health report that showcases the current financial status of your company and predicts where you'll be a few months down the line if cash flow operations run smoothly. To ensure positive working capital, it is crucial to understand how cash flow impacts business operations.
Cash is king. Cash gives you the power to invest in newer technologies, hire the best talent, grab unforeseen opportunities that may arise, and be in charge even in tumultuous times. To calculate cash flow, you need to bear two factors in mind: Accounts Receivable and Accounts Payable. Accounts Receivable are your outstanding customer payments. Accounts Payable is the money you owe. This includes all kinds of outgoing cash: rent, utilities, payroll, vendor payments, loans, taxes- anything and everything that can be counted as a business expense. Together, AR and AP form your business' cash flow. At the end of the day, you should have a positive cash flow. This means that your AP should ideally never be more than your AR.
To predict a positive cash flow, you should be able to correctly gauge when your receivables are in and when your payables are due. Some of the best practices for efficient cash flow management are:
It is an absolute must practice raising your AR invoices on time. Raising an invoice late can lead to a delay in payments which will affect your cash flow negatively. Payments are always better when they're received yesterday.
Manage your liabilities in a manner that you do not pay them before they are due. When you prepay your debts, you are not banking on their maturity and thus taking money from the cash flow when it is not necessary to do so. Doing so can negatively impact your business's financial health when the same money can be used in a resourceful way to generate revenue. While it is not wise to pay your debts late, it is also a mistake to pay them earlier than expected.
Invoice financing is a way for businesses to borrow money against the amounts due from customers. It is a loan against your AR. Invoice financing can help improve cash flow, make payments and invest in opportunities- all without spending from your business accounts. It's a win-win for you as your money makes money for you.
One smart way of managing cash flow is to let the machine do it! Invest in a spend management tool that shows you a real-time scenario of your AR, AP, and your company's financial health- all in one dashboard. A cash flow management tool, like EnKash, can make your life easier by showing detailed reports about your finances, predict future sales, consider customer payment trends, and forecast an AR trend for making an informed decision for future sales.
A spend management tool can be a wonderful partner to help you track, monitor, and enhance your business's cash flow by taking all kind of data and generating a detailed analysis of your business' spend patterns, incoming patterns, vendor payment behaviour, and miscellaneous expenses that may strike you when you're least expecting them.
Some of the benefits of a spend management tool that can positively impact your cash flow and your business in the long run are:
A spend management platform gives you a bird's-eye view of your business finances. You can have a look at the bigger picture and gauge how the upcoming AP and AR can alter your company's financial health. This enables you to take a step back to analyse and intervene if needed to maintain your business books' green bottom line.
With a spend management platform, you can easily see if budgets are being crossed and accounts are being overdrawn. Such software comes with various tools that can guide you to curb overspending and stay stringent for an efficient cash flow.
Customer retention is easier said than done. While it is a winding road, one can glide smoothly through it and maintain lifelong relations with vendors and suppliers if they're paid on time without fail. A spend management platform does not just show you how much you owe to your vendors but it also shows you the benefits of paying on time or even earlier to catch attractive offers.
Such things are often left unnoticed if done manually but that's what machines are for. With AI driving the FinTech revolution, the day is not far when every company will be able to maintain a healthy cash flow in their business with efficient monitoring and controlling of expenses. EnKash has already begun its journey down this futuristic road with its state-of-the-art spend management platform and corporate expense cards that not only boost cash flow but also set your business apart from the lot by making it smarter, more flexible, and customer-driven.