A shorter cash flow cycle means a stronger business
Every business owner knows that maintaining a healthy cash flow is essential to a company’s success. But there are a variety of ways to accomplish this objective. One way is to accelerate inflows and decelerate outflows, thereby shortening your cash flow cycle. Truncating this cycle by 10 to 15 days can significantly boost your working capital.
When it comes to inflows, you need to manage collections. Doing so includes enforcing your credit terms and aggressively going after delinquent accounts. If your payment terms are net 30 days and payment hasn’t been received, someone in your accounting department should be contacting the customer (by either email or phone) on Day 31.
On the outflows side, take full advantage of your suppliers’ payment terms. If they’re offering net 30 day terms, use electronic banking to make the payment on Day 30. Also, negotiate with suppliers for extended payment terms: Will they stretch net 15 terms to net 30 days — or net 30 day terms to net 45 days?
For more-specific suggestions on shortening your company’s cash flow cycle, please contact us. We can assess your inflows, outflows and overall cash standing to identify ways to strengthen your business.