Cash Flow management

So far, we’ve looked at three broad approaches to cost-cutting. While businesses can choose the approach that fits their goals best, cash flow management is a technique all businesses engage in. There are various mechanisms that could be used for cash flow management, which include the following:

• accounts receivable technique
• inventory management technique
• account payable technique
• credit control techniques.

For the purposes of this section, we are going to discuss the first two mechanisms before turning to two practical examples of companies using efficient inventory management systems.

Managing accounts receivable

Over time, managing accounts receivable could mean the difference between a positive net cash flow position or a negative cash flow position. What can businesses do to ensure a positive net cash flow? Here are three methods for improving the collection of accounts receivable.

1. Thoroughly track accounts receivable. The sooner you are aware of late payments, the sooner you can act. Depending on the budget available, companies can choose to use accounting software or spreadsheets for this purpose.
2. Clearly state the terms of payment and do not deviate. On every invoice you should include a clause to mention what happens if payments are not made on time.
3. Offer a small discount for early payment. Here the goal is to collect the payment earlier than the due date. Doing so would reduce your accounts receivable balance and free up much-needed cash.

Inventory management

Inventory management is a powerful lever to pull to improve cash flow. Most businesses manage inventory of one kind or another, and, perhaps not surprisingly, many of the challenges they face are the same. Below is a list of four common inventory management issues followed by the best method to address each one.

Take a moment to consider each of the problems, before you read through the methods to address them

Problem: Not keeping track of sales trends in the inventory management process

Problem: Absence of methods to keep track of inventory

Problem: Purchasing too much of a product

Problem: Slower inventory processing

Do you have any experience with any of these four cash flow management techniques? What might be the reasons for selecting a particular technique over another one?

Share your thoughts in the comments.