In the world of finance, the term Cash Flow describes the cash generated (cash inflow) and cash usage (cash outflow) in a business during an accounting period. All activities of accounts receivables and accounts payable are recorded in the Cash Flow Statement where cash flow is calculated in the Direct Method and the Indirect Method.
The Cash flow statement is a financial statement and a mandatory part of a company’s financial reports. The statement indicates how well a company has generated cash to pay its debts and operating expenses in a financial year. It records all operating activities, investing activities, financing activities of a company. Overall, it fetches the cash position of a company.
Cash Flow Management
Cash flow deficit or negative cash flow is one of the biggest reasons businesses fail.
There are certain fairly quick and simple solutions to manage cash flow. For instance, collecting receivables as fast as possible, slowing down payables without endangering the relationship with suppliers, using a business credit card or cheque to pay their suppliers, etc.
Proficient professionals like the Boston Financial Advisory Group (BFAG) assist their clients in Financial analytics (Cash Flow Analytics). They focus and spend significant time on various strategies that help enhance cash flow at a company.
Strategies to Improve Business Cash Flow
1. Inventory Management
Keep track of inventory and aim at having the right amounts and types of stock items that help to increase sales and therefore, strong cash flow.
Reviewing the inventory regularly will reveal the cost and benefits/losses of holding various stock items. Too much inventory ties up cash increases storage costs and leads to negative cash flow. Conversely, too little inventory can also lead to a breakdown in customer relationships and decreasing sales.
Track inventory cycle and estimate your stock requirements for better management.
2. Payment Cycle
Be strategic in making payments to your suppliers. Prompt invoices and follow-up can get paid sooner. Be prompt in sending invoices and following up for payments. You can offer small discounts to your customers on early payments. Offer a range of payment methods. It will encourage customers to pay sooner and you will be benefited from speed up receivables and increased cash inflow.
On the other hand, if suppliers are offering discounts on early payments, grab the opportunity. Otherwise, you should wait for the period when your company’s sales are at peak but pay before any delay payment penalty.
Top-performing companies collect payments 17 days more quickly than other companies and delayed payables by 10 days.
Negotiate better terms with your suppliers. Create a balance between your customer terms and supplier terms so that your receivables and payable can be balanced.
3. Expense Management Using Technology
Increasing cash inflow is not enough to manage cash flow. Along with controlling spending take a close look at the company’s cash flow statement and review your expenses. Think about necessity, analyze, and cut down overheads wherever possible. Look for cheaper alternatives. As a company, you should consider leasing some equipment so that you do not have to pay a lump sum amount.
Take advantage of technology in accounting. An automated data analysis tool like Expense iNBOX by BFAG keeps a track of all your company’s expenses and manages it efficiently. It delivers powerful insight into a company.
4. Cash Flow Monitoring
You know what your payables and receivables are. Where you can cut the overheads. You have the power of technology and it is not further complicated to Manage Cash Flow. Automated tools can easily monitor cash flow and tell you where you are and where you would be in the future by calculating some financial ratios. Will there be any fund emergencies? What are the actions required to get better cash flow? It will surely help you to take timely action for improved performance.
The Financial Analytics Support
One of the useful financial analytics products by BFAG is Analytics iNBOX. You will get an aerial view of the company’s financial position. Complete analytical reports of receivables, payables, statutory Dues, working capital, profitability, etc. will be available on your screen within a click. It is customizable to suit individual requirements.
BFAG (Boston Financial Advisory Group) provides the best accounting and financial services. We have a team of experienced professionals who can help you in maintaining your books of accounts.
So, get in touch with us to avail our services.
Contact us in case of any assistance or queries.
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Visit our website: www.bostonfagroup.com