An Indepth Look into Cash Flow Management

What is Cash Flow Management?

Over 80% of small to medium sized businesses fail as a result of cash flow management issues. Effective cash flow management is a complex business operation that requires careful planning, consistent evaluation, and a lot of maintenance.

A good cash flow results from optimizing cash received minus your business's cash expenses. Negative cash flow can result in an inability for your business to pay bills and operating expenses every month on time. Over time a flow problem can cause your business to become insolvent and eventually bankrupt.

Growing business expenses can result in huge flow problems if they are not properly planned and budgeted for. A common mistake that businesses make is trying to expand business operations too quickly without enough working capital available.

Cash flow analysis and cash flow projection help manage cash flow while providing business owners with crucial financial information. A cash flow analysis may take a closer look at your business's-

  • Accounts receivable
  • Accounts payable
  • Inventory
  • Payment terms
  • Operating expenses
Business owners can choose to do a cash flow analysis for a specific component or more comprehensively to judge the financial health of their company. Flow projections help forecast upcoming costs and predict a flow problem before it occurs.

How to Improve Cash Flow Management

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Poor cash flow can have disastrous effects on your business's long term success and bottom line profitability. Thankfully, business finance experts suggest various helpful tips to improve cash flow and mitigate flow problems including-

1. Leasing- Business owners who are just starting out and do not have much money to spare may not be able to afford the initial investment costs for equipment and real estate. Unless your business has a large cash account reserve available, your ability to pay bills and operating expenses every month may be hindered by making large purchases.

When starting business operations or growing business enterprises, leasing can majorly decrease business owner stress levels. An added benefit of leasing over purchasing is the tax write off that lease payments provide your business.

2. Incentivizing- Small businesses often do not have the same collection agency resources that larger corporations have. Cash coming in late or not at all from your customers can result in negative cash flow.

Increase money coming in and get paid faster by offering incentives when customers pay early. Include these incentives in the payment terms on your invoices and consider following up with customers individually to inform them about potential savings.

3. Invoicing- A common cause of poor cash flow is improper invoicing techniques. Remember, the faster you send out invoices to your customers, the faster likely you are to receive payment back from them.

When businesses fail to clearly indicate payment terms or list due dates on their invoices they risk short term and long term cash flow problems. A great first step for optimizing invoices is bolding the due date and underlining any late fees.

4. Upgrading- Not all small businesses accept electronic payments but doing so can decrease flow issues for your company. Electronic payments generally reflect much faster in your bank account balance than check payments.

Working capital is increased when you do not have to wait for a customer to return their invoice with their payment. Easy ways to further increase working capital and control cash flows are through obtaining a business credit card.

A business credit card may offer your company up to a 21 day grace period. Paying off your business's credit cards on time instead of obtaining a business loan or cash advance can decrease both short term and long term interest from accruing.

5. Negotiating- Just as you can offer your customers discounts for early payments, your supplier may offer the same opportunity for your business. As your flow projections become more accurate, you will likely have more working capital to lock in discounted early payment terms with your vendors.

6. Banking- Shop around for a business bank account with high interest rates and great credit card options. There are many banks that advertise to small business owners specifically and even offer free cash bonuses for banking with them.

Why not get paid for purchases you would make anyways? When you pay bills every month your credit card may offer cash back bonuses. Interest rates and cash back bonuses may not seem like much money in the short term but can add up to a significant amount over a long term period.


  • Most small to medium sized businesses fail as a result of cash management issues. Effective cash flow management requires consistent vigilance and maintenance.
  • Business owners must make sure their business has enough cash by maintaing a positive cash flow long term.
  • Managing cash flow is simplified using cash flow projections and cash flow analysis tools that can predict cash flow issues before they occur.
  • There are various ways to decrease cash flow issues ranging from proper invoicing to receiving cashback when you pay bills every month with a business credit card.

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