Cash Flow is King | American National Bank
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Cash Flow
Is King

by Andy Poquette, AVP Treasury Management

As a business owner, managing the day-to-day cash flow can be very challenging. A business’ cash flow is tied to its operations and business activities, such as the purchase or sale of a product and paying for the products needed to run the business.

Lacking positive cash flow (more money going out than coming in), will eventually cause a business to shut their doors because of a lack in profit. Without positive cash flow, companies will not be agile enough to respond to the change necessary to succeed in today’s quickly evolving and demanding business landscape.

Despite the fact that many business owners and office managers understand the necessity of successfully managing their cash flow, two-thirds of all businesses still experience cash flow problems from time to time.

If your business is having trouble maintaining a positive cash flow, it isn’t necessarily the end of the road. In fact, by reconfiguring the way your business operates, you will be able to gain control over your cash flow and give your business the capital it needs to be successful.

Bill Your Clients as Quickly as Possible

It’s extremely common for businesses to wait until the end of the month to invoice their customers all at once for the past month’s activity. Unfortunately, the longer you wait to send out invoices, the longer it will take for you to collect on them.

If cash flow is an issue for your business, consider accelerating your billing process and send out invoices the moment jobs are complete and orders are shipped. Following this practice will ensure that your clients get their invoices faster, allowing them to pay you sooner.

Incentivize Customers to Pay Sooner

To assist with cash flow issues, incentivize clients with favorable payment terms if they pay their invoices in advance. For example, offer 2/10 net 30 terms, which means your clients get a two-percent discount if they pay their bills within ten days. Otherwise, payment in full is required within thirty days.

Keep Your Eye on Cash Flow, Not Always on Profit

Many business owners open up their doors for the same underlying reason—to make a profit. It is highly likely that your business will have a difficult time seeing a profit if you’re constantly struggling to pay the bills.

The best business plan ever written needs access to the cash necessary to respond to new opportunities and meet demands. For example, your business might generate a considerable amount of profit. But a good majority of that profit could be tied up in receivables, which doesn’t do you much good when it comes to you needing cash to cover your operating expenses. The profits you seek will certainly follow if you consistently focus on maintaining a positive cash flow.

Cash flow is king in any business to allow you to manage your payments and client demands, all while growing the company. Maintain an open relationship with your banker and/ or trusted advisor. Together you can create a path to successfully manage your cash flow, allowing you to focus on what’s most important to you in the first place—your business.