Cash flow can be defined simply as the net amount of cash, or cash equivalent or currency “flowing” in and out of a particular business. This translates to a value add for shareholders, meaning that the ability to generate a positive cash flow indicates added value for key stakeholders and shareholders.
A positive cash flow, as the name would suggest, means that a company’s assets are increasing and the money or cash flowing into the organization exceed that which is flowing out (i.e. revenue is greater than cost). The value of positive cash flow goes beyond a profit, it also means that an organization can pay its debts, reinvest, pay shareholders, all while managing and taking care of expenses. Managing cash flows can be particularly difficult for small businesses and SMEs. Here are some tips to help improve the cash flow of your SME.
Applying the best best practices in accounting
The importance of real time, accurate information is the first step in assessing your business’ financial situation, both current and future. This information impacts the decisions you make from who you hire to the materials you buy. Remember this when choosing an accounting package or software and bear in mind that you get what you pay for
Good Business relationships are key
Making sure to stay on good terms with suppliers will help ensure that you are able to ask for and collect money if and when owed. The less invoices and outstanding or balance owing you have, the better your cashflow. Every penny counts.
Favorable payment terms
Though good customer service equals happy customers, good payment terms equate to good cash flows. This means that you have to find a balance where customers are happy but you also receive payment on time. The same goes for payment terms with suppliers, good relationships are important but so is receiving money in a timely manner.
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