1. Understanding Cash Flow
Cash flow is the movement of funds in your business – incoming and outgoing. It is important to understand that profit does not always mean that you have available funds. For example, you may have made a profit, but if customers have not yet paid their invoices, you may have a cash shortage.
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2. Effective debtor management
Collecting payments from customers on time is critical to maintaining a positive cash flow. It is recommended to set clear payment terms, remind them of due dates and, if necessary, offer discounts for early payment. This speeds up the receipt of funds and reduces the risk of cash gaps.
3. Adequate working capital
Working capital is the resources available for day-to-day operations. Insufficient working capital can limit a business’s ability to respond to unexpected expenses or growth opportunities. Regular review and planning will help maintain the required level of liquidity.
4. Optimizing inventory
Excess inventory ties up capital that could be used more effectively. Regular analysis of inventory and demand can reduce surpluses, free up funds and improve cash flow.
5. Pay on time
Paying suppliers on time strengthens business relationships and can provide benefits such as early payment discounts. However, it is important to balance timely payment with maintaining sufficient liquidity.
6. Balance Sheet Forecasting
Creating cash flow forecasts helps you anticipate future financial needs and avoid unexpected shortfalls. Rabobank offers tools such as the Balance Sheet Forecast, which provide a visual representation of future cash flows, allowing you to make informed financial decisions.