Cash is king when it comes to business. A business with money tied up in inventory, equipment, investments and other non-liquid assets is an enterprise with limited flexibility. In particular, cash flow accounting is especially important.
The challenge lies in improving business cash flow to the point that there is a strategic balance between liquidity and illiquidity in the context of company assets. Here’s how to do it.
Step 1: Recognize the Importance of Cash Flow Accounting
The first step to successful cash flow accounting is recognizing its importance. Cash flow provides invaluable flexibility that empowers businesses to make strategic moves at all times. If a considerable amount of cash is in limbo on the balance sheet, flexibility is limited. Recognize the importance of making working capital as efficient as possible and the cash will provide a litany of benefits including heightened efficiency.
Cash flow recognition sets the stage to finance new business opportunities with potentially exponentially greater payoffs down the line than would be possible had cash flow remained trapped or simply been ignored. Furthermore, a recognition of the importance of cash flow decreases costs and debt, bolsters shareholder return, and provides the all-important competitive advantage.
Step 2: Embrace Automation for Cash Flow Accounting
Automation has the potential to revolutionize your cash flow and your business as a whole. Seize the opportunity to automate your accounting processes including accounts receivable (A/R) and you’ll reduce overhead, maximize efficiency and free up cash for potentially invaluable opportunities.
Closely tracking accounting information within spreadsheets through automation helps monitor the money coming into your business (or lack thereof), empowering you to generate and send invoices that facilitate payment collection notices. Moving away from manual processes and implementing automation technology is a major step in setting a business apart from others.
Step 3: Accounts Payable Flexibility
Accounts payable to other parties don’t have to be a one-way monologue. Though it might seem counterintuitive, it is perfectly acceptable to attempt to negotiate accounts payables. Decreasing or even delaying the money that is sent out of your business makes it that much easier to redirect cash to more pressing needs in the short term.
There is no need to lie when floating out the possibility of delaying payments as those your business is indebted to might find such an arrangement to be mutually beneficial in the long run. A vendor that agrees to flexible payments will benefit through the form of continued business and the potential for invaluable references to other prospective clients.
Step 4: Billing Efficiency
The manner in which bills are created and transmitted is just as important as rendering services and providing products. Expedite billing, boost its accuracy and maximize efficiency, give the new system some time to make an impact and you’ll find it proves highly efficient.
When in doubt, opt for automation as opposed to manual billing. Automated invoicing and billing through tech solutions combined with customer portals and reports that pinpoint problem accounts create the impression that your business is interested in reciprocity and dialogue as opposed to a domineering relationship.
Step 5: Tap Into the Power of Professional Collectors
Collecting money owed to your business is essentially a form of value protection. Your company rendered services or sold products yet did not receive payment, meaning value was provided yet not paid for. Instead of wasting your limited in-house capital attempting to collect past-due payments through accounts receivable, opt for a collections company to do the work on your behalf.
Even if a collections agency recoups only part of the money owed, it should be viewed as a success as partial payment is better than no payment at all.
Step 6: Recognize Collecting Payments is not the End
There is a common misconception that receiving payment is a monumental success in and of itself. Payments made to your business are an important step in the right direction yet they are not the finish line. Payment processing in a timely manner is of the utmost importance.
Sweat the small stuff of payment processing including applying the payment to the proper account, recording that payment in your record system, and removing the invoice from subsequent mailings. Maximize the efficiency of the payment processing component of your accounting department, ensuring it occurs in a timely manner and you’ll maintain an accurate record of which accounts are in arrears as well as those that are up-to-date.
