Cash_Flow_Management_body.jpgBy Heather R. Johnson.


Money in, money out. Even with a well-defined business plan and innovative product, a small business won’t last long without well-managed cash flow. To ensure that your business remains stable as sales fluctuate, adopt these cash flow best practices.


Make accurate projections

Cash flow projections rank next to business plans and mission statements in importance. These projections factor in customer payment history, upcoming expenses, vendor billing cycles, and receivables.


Steven Friedman, senior vice president, business and advisory brokerage, for Reichel Realty & Investments, Inc. in Palm Beach Gardens, Florida, prepares weekly, monthly, and annual reports for clients.


“Seasonal changes might affect a business’s cash flow,” says Friedman. “A retailer may have strong sales in December, for example, but they have to buy in October during a weak sales month. Understanding the annual picture helps a business plan for those times.”


Invoice promptly

An international survey of B2B payment behavior from credit insurer Atradius reported that U.S. businesses lose 51.9 percent of their receivables value when not paid within 90 days of the due date. More than a third of those business’s receivables aren’t paid on time.



To shorten the time from product or service to payment, invoice promptly and track receivables diligently. Consider deposit requirements for certain clients. Some businesses offer discounts to quick-paying customers, however, Friedman cautions against this practice. “Sometimes customers will take a two percent discount and still won’t pay on time,” says Friedman. “If a business can’t get a line of credit from its bank, it may want to consider a reputable factoring company, which buys receivables and takes on the waiting time, to increase cash flow.”


Manage payables

It’s ironic that as a business expands, expenses often grow faster than sales. Keep a close eye on costs and hang onto available cash as long as possible. Pay invoices on or close to the due date. “You might need that money for something else,” says Friedman. “Waiting to pay your invoices means you’ll have the cash on hand if you have an unforeseen need.”


Businesses with strong cash flow may want to accept those early payment discounts. Businesses with a tight cash flow may want to extend payment from net 30 to net 40 or 45 when possible.


Manage shortfalls wisely

When cash flow slows to a trickle, juggle expenses creatively and wisely until the horizons open again. Pay critical expenses (rent, utilities, employees) on time and negotiate noncritical expenses. Ask vendors and suppliers for an extension. Consider a line of credit. Most importantly, don’t ignore the problem. “You can buy a lot of time and good will if you communicate honestly with vendors,” says Friedman.


Don’t mix expenses

Small business basics dictate that owners should keep personal and business expenses separate. This rule applies for accurate tax returns as well as cash flow. “All cash should be accounted for and controlled properly,” says Friedman.


With effective cash flow management, a small business has a better chance of weathering shortfalls, late-paying customers, and other business ownership challenges. Project realistically and keep and eye on income and expenses to ensure continued small business success.


Bank of America, N.A. engages with Touchpoint Media Inc. to provide informational materials for your discussion or review purposes only. Touchpoint Media Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Touchpoint Media Inc. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.


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©2016 Bank of America Corporation

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