Is your business growing steadily or even exponentially? Do you have the right systems in place so that business growth continues at a healthy clip?
Understanding how your payments in and payments out are being managed at a deeper level is one of the most important steps you need to take when managing a business. By keeping a close eye on your business’s cash flow, it’s easier to identify pain points that need to be addressed, as well as bottlenecks and other areas in need of attention.
Running a profitable business can be hard work, but attending to core steps helps maintain strong growth and steady profitability. Luckily, there are solutions to the difficulties involved in managing payments and maintaining a steady cash flow.
Why Monitoring Cash Flow Is So Important
Cash flow is one of the main indicators of financial health and liquidity. At the most basic level, monitoring cash flow helps businesses know if they have enough money to pay their bills and keep running. It also helps them plan for the future, so they can invest in growth or handle unexpected costs.
Properly managing cash flow is far from a new focus in the business world. It’s been a featured part of any business evaluation for generations. Without a clear handle on how cash is moving throughout your ventures, small problems can quickly turn into massive, company-crushing problems.
Not only can accurate monitoring help identify snags in your systems, but it’s one of the most accurate measures of how financially healthy your company is, even more so than focusing on pure profitability.
One of the easiest indicators of cash flow issues is if payables are outstripping the pace of receivables. If a business has enough cash on hand to manage this situation, it’s likely not much time until resources are overwhelmed. This can cause compounding and potentially catastrophic problems. Improving business cash flow sets the company up for continued future success.
How Do You Calculate Cash Flow in a Business?
To calculate cash flow in a business, start by adding up all cash inflows. Cash inflows could include revenue from sales and any other income. Next, subtract all cash outflows, including expenses like salaries, rent, and bills. The result is the net cash flow, which shows how much cash is available after all inflows and outflows.
At its most basic level, the net cash flow formula looks like:
- Total Cash Inflows – Total Cash Outflows = Net Cash Flow
Tips To Improve Your Business’s Cash Flow
Review our six tips for improving your company’s cash flow here:
- Offer Incentives for Early Payments: Offering customers discounts or other perks for paying ahead of schedule creates a win/win situation for both parties — they get a benefit for being on top of their payments, and you get access to cash faster.
- Process and Send Out Invoices Immediately: Speed up receivables by getting invoices out ASAP. As part of this, review your invoices to ensure the terms are clearly stated, late payment fees are included, and the payment instructions and due dates are readily apparent.
- Implement an Efficient and Accurate Credit Check System: When you aren’t working with hard cash, it’s important to accept credit payments from sources that are trustworthy. Late payments can become a compounding issue, so head that problem off before it becomes unmanageable.
- Prioritize and Maintain Professional Relationships: While it can be tricky to put an exact figure on the value of a good relationship, a friendlier connection likely pays off in the long run significantly more often than a contentious one. Whether you’re communicating with a vendor or a customer, maintaining the human element of your connection is too valuable to overlook.
- Establish a Clear Break-Even Point: Understanding the number you need to hit to break even — the point where sales eclipse expenses — gives you a clear target to shoot. It can also help you manage growth without biting off more than you can chew.
- Use an All-Inclusive Platform to Help Manage Your Payments: By simplifying and streamlining your payment processes, it’s easier for your business to succeed and grow. Tip: Services like ConnexPay help simplify your payments and maximize your company’s cash flow in one place through an easy-to-use platform.
Improve Business Cash Flow Today
Improving business cash flow helps set the stage for long-term success and stability. By adopting better payment management strategies, you can decrease your stress and increase your financial health. With our tips above, managing payments and cash flow is easier than ever.
Then, when you add tools like ConnexPay, you can improve cash flow with instant access to incoming funds that can be used to pay suppliers and vendors promptly. All businesses need to accept payments from customers and also make payments to suppliers.
Without ConnexPay, businesses have to rely on two separate payment systems, two separate contracts, and two separate teams (even if it’s technology provided by the same company) in order to accept payments and make payments. With ConnexPay, both accepting payments (PayIn) and making payments (PayOut) are combined in one platform with unified reconciliation.
The all-inclusive system manages every step of the payment process, including:
- Accepting payments
- Running fraud analysis
- Receiving authorization
- Paying suppliers
The bottom line when managing cash flow and payments is that the best process is one that offers efficiency and security to you, your customers, your business partners, and your suppliers.
