Keys to effective cash management

No matter what type of company you’re managing, following a few simple practices can be the key to effective cash management.

• Reduce lag time. For example, give incentive discounts to customers who pay early. Aim for just-in-time inventory to reduce holding costs.
• Establish a line of credit. To cover shortfalls resulting from excessive lag time, unforeseen business disruptions, or weakening in your particular market, set up a line of credit with your local financial institution. But take care that short-term credit doesn’t develop into a crutch that props up poor cash management.
• Check out new customers. Like a landlord who checks the payment history of a potential tenant, a prudent business owner will assess whether new clients are likely to pay on time before extending them credit. Deadbeat clients can squeeze a firm’s cash flow quickly, especially if they purchase large amounts of inventory or services.
• Grow with caution. Expanding into new markets can bring momentum and additional sources of income. But watch out. Developing new product lines, expanding facilities, hiring employees, ramping up your marketing budget — all consume cash. Before racing down this road, be sure to generate accurate cash forecasts, preferably with expert help.

For more guidance in effectively managing your company’s cash, give us a call.