How to Manage Cash Flow for Your Business

Cash flow management is the process of tracking and analyzing the money entering and leaving a business. Timing these inflows and outflows helps a company pay bills on time, maintain strong relationships, and take advantage of new opportunities. Cash flow management also helps a business anticipate cash flow crunches. This is important since periodic cash shortfalls are as much a reality of running a business as hiring and paying taxes.

To manage cash flow, a business needs to collect payments from customers quickly, hold on to funds as long as possible, and closely monitor how money moves through the company. Using tools to track and manage these tasks can help to ease the burden of this critical task.

Learn more about how businesses manage cash flow and the tools that can help.

Understanding cash flow management

Cash flow management is essential to the health and viability of a company, since it's how a business makes sure it has enough cash to meet its obligations and maintain smooth operations. Managing cash flow includes these fundamental tasks:

• Making sure your cash inflows (payments received) and cash outflows (expenses paid) are timed so you always have enough on hand.
• Having a system in place to regularly monitor inflows, outflows and potential shortfalls.
• Ensuring your business generates enough revenue to cover operating expenses, accounts payable and long-term growth.

How to manage cash flow for your business

Use these five tactics to help manage cash flow.

1. Speed up customer payments

Taking steps to bring cash into a business as quickly as possible can help with cash flow management.

• Invoice promptly and professionally. Consider using digital invoices to generate invoices quickly and reduce the potential lag between invoicing and customer payment. Choose an invoicing system that provides the option to send automated payment reminders to customers.
• Follow up promptly. Politely and professionally follow up on late payments. A delay may be due to a mistake on the invoice, missing information or another issue that needs to be resolved for a customer to pay.
• Make it easy for customers to pay. Accept credit cards, debit cards, ACH payments and digital payment tools such as Zelle® so that customers can pay in any way they want, quickly.
• Access funds quickly. Deposit checks with tools like mobile check deposit to speed up cash availability.
• Identify slow payers. Cash management tools that track and categorize payments can also identify which customers are paying slowly so that you can take action.

2. Hold on to cash as long as possible

Timing payments to keep cash in a business as long as possible means it may be available when it's needed.

• Schedule payments close to due dates. This allows a business to keep cash longer and use it where it's needed.
• Use alerts. Use a cash management system that lets you receive emails, texts or mobile app notifications when payments are due so that you can hold onto your cash but still be sure to pay on time.
• Use payment tools. Electronic funds transfer tools like RTP (real-time payments) and ACH (automated clearing house) let a business send electronic payments quickly and close to due dates. For larger or international payments, use domestic and international wire transfers to move money speedily and securely.
• Seek payment terms. Some suppliers offer 30-, 60-, or 90-day payment terms. Search for vendors who offer this or try to negotiate better terms with your existing suppliers.

3. Use technology for cash flow management

Leaning on cash flow management tools to ease the job of tracking, categorizing, and analyzing cash as it moves in and out can help to be sure that cash flow management is consistent and insightful.

In addition to payments, cash flow management tools can:

• Automate bookkeeping entries.
• Track and categorize payments.
• Send alerts when money arrives or leaves your bank account or bills are due.
• Set up alerts to monitor your cash balances and transactions in real time so that you can make decisions to maximize how much cash you have on hand.

4. Plan for cash flow crunches

Most businesses will encounter a cash crunch at some point. Preparing for it before it happens can help a business to weather it successfully.

• Line up financing early. Apply for a loan, line of credit (LOC) or other financing before it is needed. Lenders may be more likely to approve funding when business finances are stable.
• Consider leasing equipment. Leasing can preserve cash reserves by reducing up-front costs, although long-term it may be more expensive than buying.
• Build a cash reserve. Even though it is difficult, strive to establish several months of operating expenses to cover cash flow crunches.

5. Focus on revenue

Evaluating current offerings, customers and markets may help to reveal an opportunity to increase customer revenues.

• Prioritize profitable offerings. Identify and focus on the products and services in a business with the highest profit margin. Focusing on increasing sales of these items can strengthen cash flow.
• Focus on your best customers. Loyal customers who buy a lot from a business may represent an opportunity for upselling or cross-selling.
• Expand to new markets. Consider selling current offers to a new type of customer, in a different location, or through a new channel.

Cash flow FAQs

Is it risky to be too optimistic about cash flow?

Overestimating cash inflows or underestimating upcoming expenses may create a false sense of cash flow security. Factoring in the likelihood of slow payments or unexpected expenses can help a business maintain a realistic attitude toward cash flow. Tracking and analyzing cash flow will provide an accurate view of a business's cash flow status.

How can I avoid late payments from customers?

Invoice promptly and accurately using digital invoicing that also sends payment reminders to customers. Follow up on late invoices promptly to correct any errors or problems that might delay payment. Accept credit cards, debit cards, ACH payments and digital payment tools such as Zelle so that customers can pay in any way they want, quickly.

How can I prepare for cash flow crunches?

Most businesses experience a cash flow shortage at some point. This is true even for profitable companies. Cash reserves can provide a cash flow cushion to help a business pay bills and stay afloat until cash flow improves. Also line up financing before you need it. Consider an LOC or other financing for cash tight spots. By using a cash management tool to track and analyze cash flow, a business can also have advanced warning of impending cash flow problems in time to prepare to manage them.

Is cash flow the same as profit?

No. They are two distinct and important measures. Cash flow tracks how money is actually flowing in and out of a business. Profit reveals if a business is making money over a certain period of time once all expenses are subtracted from revenue. A company can show a profit but still run out of cash due to slow customer payments, unanticipated expenses, increased costs and a variety of other factors that impact how cash flows into and out of a business.

Manage cash flow to stay on track and reach goals

Strong cash flow management is more than tracking the money moving in and out of a business; it's about building resilience and facilitating growth. Best practices such as invoicing promptly, following up on receivables and strategically timing payables strengthen working capital on the day-to-day, while forecasting and planning for crunches give businesses the foresight to act before problems arise. Maintaining a cash reserve provides a safety net for unexpected expenses or slow periods, and focusing on profitable products, services, and new revenue opportunities supports ongoing inflows. For any business, detailed and consistent cash flow management is the key to resilience, smarter decision-making and long-term success.

Ready to take your business to the next level? Citizens is here to help with cash management solutions to help facilitate cash flow and keep your day-to-day business operations running smoothly.

Cash Management Tools