Tips in Cash Management for Better Business Performance
Businesses face numerous cash transactions daily. This is most especially true for merchandising and retail companies. From the purchase of supplies to sales transactions, cash transactions occur throughout the day and in many different activities.
That is why the decision-makers must know cash management. You need to know the red flags to improper cash handling and learn how to better manage it.
Cash management is the process of controlling the cash inflows and outflows of the company. It is important to note that businesses have the power to control how cash comes in and goes out of the business. Therefore, business owners should understand how they can properly manage their cash to better improve the company’s performance.
If you haven’t started managing your cash yet, you should start now. Here are tips on how to do proper cash management.
Understand Your Cash Flows
The first step to beginning proper cash management is knowing where and how money comes in and goes out. Understanding your cash flows allows you to see the big picture of your cash transactions and know what aspects to control when necessary.
The most common cash transactions are payments to suppliers and collections from customers. These are usually the transactions that dominate your cash flows statement. Therefore, your management of these transactions can make or break your business.
You can start with your company’s statement of cash flows. Take note of how lax or strict your customer credit and collection process are. Know how often you order your supplies and for how long until you pay them. Identifying your current cash operations will later help you in knowing where to improve.
Manage Payment Timing
Financial management principles suggest that companies should plan the timing of their payments to suppliers and other expenses. This timing should result in an optimal outflow of cash from the company.
Companies have control over how early or late they pay their dues. But good cash management entails knowing when to pay early and when to delay payments. Company owners should not just hasten or delay their payments when they feel like it. It should be planned, with proper calculations proving that this payment strategy will benefit the company’s cash availability.
Take advantage of supplier credit terms. If you can avail of a discount if you pay within 15 days, then pay on the 15th day. However, if there is no benefit in paying early, you can maximize your payment time.
If you are in a difficult situation, and cannot avoid delaying payment, inform your suppliers. This way, they know why you’re late in your payments, and not assume that you just forgot. It builds trust and understanding with your suppliers.
Manage Credit Policy and Collections
Companies can choose to be tight or relaxed in credit policies. When you have a strict credit policy, you only allow a very small percentage of sales to be paid in credit. Further, it also means that customer dues are to be paid within a shorter period. A strict policy results in high liquidity.
On the other hand, if you’re relaxed, you allow a bigger portion or all of your sales to be paid in credit. Customers like it when they can delay payments. In some instances, companies allowing more credit sales are better in enticing and retaining customers. Proper cash management entails knowing when to be strict and lax in your credit policy.
Moreover, it is also advantageous to hasten collections. Improve your collections by following these tips. Issue invoices promptly after a transaction. Offer discounts to entice customers to pay early. Also, track your receivables to see slow-paying customers. Take note of them and avoid giving them credit approval on their next transaction.
Expert Advice on Cash Management
Cash management is crucial in ensuring that your company is operating at an optimal level. With proper cash management, you can ensure cash availability and savings.
Do you need expert advice on how to properly manage your cash flows? 3E Accounting is the answer. We are a top accounting service provider in the Philippines, offering corporate services from company formation to accounting to management advisory. We can help you attain the cash management plan most suitable for you. Contact our team of experts today!