5 Cash Management Pitfalls to Avoid

Avoiding common financial missteps is an easy way to support your business’ health and profitability. Keeping a close watch on your entire financial operating cycle — starting with receiving payments and ending with investing funds back into your company — can help you accomplish this.


Here are five common mistakes that business owners make at different stages of the cycle. Review these trouble spots to find areas where you may be able to improve your practices.

1. Letting collections lag

Inefficient collections practices can easily disrupt a business’ financial cycle. The slower funds are collected, the longer you may need to wait to pay bills and reinvest in your company. Invoicing electronically and accepting electronic (ACH) payments are two ways to help speed up inflows. Allowing ACH payments from other companies can come with the added benefit of better payment terms.


Specify a clear due date on invoices and consider offering customers a small discount or other incentive to pay early. Depending on the nature of your business, you might also request partial payment upfront for larger projects.

2. Using inefficient deposit processes

The way your business handles deposits can also speed up or slow down your financial cycle. Using a remote deposit service, which allows users to securely scan checks from their desktop computers, could reduce the half hour or more that manual deposits might take and enable you, as the business owner, to redirect those paid hours into another revenue-producing task.


Lockbox services, which direct payments from customers to a post office box managed by the bank, can automate the receivables process for businesses with heavy volumes of check payments. Solo business owners who frequently travel can also benefit from these services, since payments are processed and posted — and funds are made available — without their intervention.

3. Paying bills early

Paying bills slowly, but on time, is typically a good rule of thumb for keeping healthy cash balances. An exception to this is if a vendor or service provider offers a compelling early payment discount, and if you can take it while comfortably meeting other payment obligations. Consider online bill pay to schedule payments in the way that benefits your business most — for example, to stagger payments to avoid crunches or to capture early payment discounts.


Some businesses may benefit from using purchasing cards — essentially, procurement cards that allow 30 days or longer to pay for purchases, interest-free, though vendors are paid immediately. A business banking professional can help determine whether a purchasing card could benefit your company. Meeting regularly with your treasury specialist, together with your other key bank and non-bank partners, can help you stay ahead of future business plan changes so you can optimize your cash flow.

4. Not protecting your funds

A key component to managing cash effectively is keeping it secure. This means taking steps to protect it from fraudsters; experts note that fraud can put companies out of business since it’s very difficult to get money back once it’s gone.


Explore banking tools that can help keep accounts secure. Debit blocking and filtering, for instance, lets users specify who can initiate debits (this may include trusted suppliers or utilities companies) and prevents unauthorized withdrawals. Business owners should also monitor their supplies of paper checks since fraudsters need only a routing number and account number to initiate a bogus ACH transaction and withdraw money from an unprotected account.

5. Not planning ahead for financing

The ability to secure financing can be critical for funding purchases and investing back in your company. Yet waiting to seek financing until you absolutely need it can make it difficult to get funds. Experts recommend you understand the bank’s lending guidelines, knowing what you pledge as collateral, and clear up any credit issues before approaching a bank.


Consider including banking personnel and your accountant in conversations about financing. This can help ensure that the right type of financing is chosen and that it fits within a larger plan.

More information

We are committed to helping your business succeed. Our dedicated business banking professionals can help you find the right product to meet your business’ needs. To learn more, please call 1-800-428-7463, visit us online, or visit your nearest Citizens Bank Branch.


Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.