Having problem in cash management?

Managing cash flow is fundamental for the survival of any business, a business may have all the revenue needed but managing the cash flow is of vital importance, As the old saying goes “Revenue is vanity, cash flow is sanity, but cash is king” so manage your cash effectively.

Practically, many businesses may continue to function in the short or medium term even if it’s incurring losses, with an optimism of growth and profits in future.
But, without cash to meet their immediate needs? Will a business survive? How Long?
Not long enough, do you agree?

Apart for the general understanding of keeping enough working capital, cash and bank balances etc. let’s try and understand some techniques that help in overall cash management.

Cash Inflow and Outflow

Cash comes into the business (cash inflows), mostly through sales of goods or services and flows out (cash outflows) to pay for costs such as raw materials, transport, labour, and power. The difference between the two is called the net cash flow for a particular period of time. This is either positive or negative. A positive cash flow occurs when a business receives more money than it is spending for a defined period of time.

A negative cash flow means the business is receiving less cash than it is spending. It may struggle to pay immediate bills and need to borrow money to cover the shortfall. Here it is important to note the difference between cash short fall and losses. Cash short fall does not necessarily mean that the business is running in losses, it merely point to the ill management of Cash.


Businesses aim to provide greater financial returns than the level of interest earned by simply placing the cash in a bank. They should not hold too much cash as it leads to loss of interest. The cash situation is referred to as the liquidity position of the business. The closer an asset is to cash, the more ‘liquid’ it is. The best way to ensure some liquidity would be to invest in some marketable securities. This would enable the company to earn an optimum amount on liquid assets, and at the same time provide liquidity.

Payment to Creditors

A good procurement process usually involves getting quotes from more than one supplier. Even if you were to source from the one offering the lowest quote, other considerations such as longer payment or credit terms should be considered. Selecting a supplier that offers you an agreeable payment option that leaves you with more cash on hand may be appropriate if you are short on cash. Being a good pay master does not mean payment should be made as quick as possible, and timing all payments till their due dates could be considered as a solid cash management arrangement.

Arrange Credit Lines

Having credit lines available from your lenders is a great way to manage your cash flow in times of need or when there are unexpected events requiring huge cash outlays. The availability of short term credit facilities or source of funds will be useful in providing extra liquidity for the business. However credit lines are not very reliable, as they may not come through in time of recession.

The Cash Flow Cycle

The cash flow cycle is an important factor, in contemplating the liquidity factor of the company. Business with small cash flow cycles face lessor problem pertaining to liquidity. Cash flow cycle is defined as the time take by funds to return back to the business. There are many ways to reduce to time taken by invested cash to return. For example-
1) Offer shorter credit periods to the customers.
2) Select creditors who provide longer time to pay back.
However, this must not be done at the risk of hampering the business relation.

Recovery form debtors

It is critical not only to bill customers immediately upon delivery of goods or services rendered, but also to promptly collect the debt. It is useful to receive payments sooner to avoid customers running out of cash or prioritizing payments to other suppliers.

Cash flow is always important, but especially when it is not easy to obtain credit. When the economy is in recession, financial service providers are reluctant to lend money. Borrowing also becomes more expensive as interest rates are raised to partially offset the risk of borrowers not paying back loans.

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