Friday, 28 February, 2020

Cash Management for Business


The subject is all about timing. In the long run, a profitable business will generate money. In the short term, it is trading over the previous couple of weeks and months that figure out cash flow in the next few weeks. The task is to accelerate receipts and delay payments as much as possible. However , you are constrained legally, contractual relationships, good commercial practice and the pressure that your business companions are willing to apply.

Make the bank manager your friend

Most companies depend on mortgage or overdraft finance, so the financial institution manager is a key person with whom you must develop a strong relationship. He or she wants to receive regular management information, together with early warnings associated with problems, so make sure you provide that will, and check regularly that he or she is happy with what’s being sent.

You must understand the bank manager’s limits, in two senses:

What are the formal bank limitations to his or her decision making authority.
How long can you push him or her beyond the particular nominal borrowing limits that you have already been set.
You may have a very strong relationship with your manager, but if he or she is unable to increase your limit without referring to higher authority, you relationship may be associated with limited value to you.

You should also discover with your manager any possibilities to get re-financing that might reduce your borrowing expenses and/or give you greater borrowing capacity. Leasing or asset financing can provide you more flexibility than you have at present.

Elements of cash flow

Different aspects of your cash flow require different management approaches.


You have very little range for manoeuvre here. If a business doesn’t pay its staff on time, its credibility is compromised, perhaps fatally. You may be able to get staff to agree to a delay in payment, possibly from mid-month in order to end-month, if they know the company’s finances are stretched. But you can only try this once.


It goes without saying that having your customers to pay on time is key in order to strong cash flow. The separate write-up on this subject goes into more detail, but you need a rigorous and organized approach to this area, combined with solid relationships with your key customers.


We couldn’t recommend a planned policy of paying suppliers past due. But you need to ensure that your payment process takes the maximum amount of credit & runs with the minimum of inefficiency plus distraction. Again, there is a separate content which tackles this topic in more depth.


Depending on the jurisdiction by which you are operating, you may be able to expand the credit period for payroll taxes, sales taxes/VAT or tax on profits. You need to talk to additional finance people in your country to discover what is possible.

One thing you should never perform is simply not pay without requesting an extension. Without exception, tax regulators take a very dim view of the and are likely to bring all sorts of unpleasant consequences down upon you.

Financing costs

When interest or mortgage repayments are due to your bank, they have the distinct advantage that they can dip into your bank account and assist themselves. Using your strong relationship with your bank manager, you may be able to get some assistance here.

Involve others

You can’t do this on your own. You need to involve your own other directors and managers in the task. Make them aware of the important importance of cash flow and enlist their help. In every negotiation with customers, they should be looking to reduce payment conditions; and with suppliers to increase payment conditions. It is surprising how rarely transaction terms feature in commercial discussions, but you need to make sure that your company is an exception to this rule.

If you want to give your Directors some further motivation to work on cash flow, look up the guidelines on wrongful trading or trading while insolvent. In most jurisdictions, you can find frightening penalties that can apply to Company directors in these situations.

Watch for fraud

Any business can be at risk of fraud. You need to make sure that opportunities are kept to a minimal by making sure there is a double check on payrolls, new vendors, supplier payments and banking. It’s particularly difficult in small businesses where one person really does everything, but only vigilance of this sort can protect the company.

Ensure that somebody regularly audits aspects of the accounting function, in a visible way, so that staff know they are being checked up on.

Forecast and keep track of

A weekly or even daily prediction is an essential tool to keep on top of your cash flow. It’s simple to build on Excel. The trick is to check your forecasts towards actuals and ensure you learn from exactly where your forecast is inaccurate.
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You are going to quickly come to understand the main patterns of payment and be able to use them to your advantage. For example , you may find that a major client always pays you on the Wednesday after your invoices are due. By pointing out that this is usually late, you may be able to get them to switch to the Tuesday before due.


Keeping cash flowing is an essential task for any finance team. Utilizing the ideas in this article, you can get the timing right and keep your business afloat.


Cash management is the indispensable job of the finance function
Make the financial institution manager your friend
Involve buying and selling departments in improving cash flow
Watch out for fraud
Forecast and monitor your money performance
Steve Lloyd qualified like a Chartered Accountant and as a Finance Director he has experience running the finances of a wide variety of organisations. This individual believes that the discipline of monetary management is essential to any business yet is insufficiently understood.

Steve leads the Prospero network of Finance Directors, supporting businesses on an on demand basis. The part time finance director service is a brilliant solution to get businesses that need expert financial management, but don’t need a full time person.
He is based in Solihull in the UK.

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