What is cash flow?

November 07, 2015
Cash Flow

Learn more about it and how to improve the operational cash flow of your business.

For businesses, cash flow management is crucial. It refers to the amount of money available after you have made the required payments. As part of the natural cycle of cash movement, your business will receive money based on the sale of products and services; meanwhile you will use other portions of the company’s money to pay for suppliers and services. It is important for you to know the amount of positive cash flow available, since it represents the money you have on hand to comply with operational needs. At the same time, it contributes to taking advantage of growth opportunities that appear from time to time without prior notice.

Here we have some guidelines on how to improve the operational cash flow of your business:

Collect the money as soon as possible

Identify key stages in which, once completed, you can collect an estimated portion of the money for the product or service you offered. Collecting in installments is quite common, especially when dealing with long-term projects that can take months, or even years, to complete.

One good strategy to collect money is to establish due dates for payments. Customers respond better to specific dates and terms. Once the payment date is established in the contract, you will have on hand a document that you could use legally, if needed.

Experts also recommend that you establish penalties for late payments. It is very likely that your clients prefer to comply with due dates rather than dealing with late fees.

Keep money on your side as long as possible

Maintaining money on your end for as long as possible helps operational cash flow and allows you to earn more interest from your funds. One good strategy is to negotiate with your suppliers more flexibility for making payments.

You can also obtain discounts for early payments. Although the practice is not very common, some companies still offer a 1% or 2% discount if their invoices are paid before the due date. A 1% discount for a payment, made within 10 days, allows you to save an average of 36% per year.

Earn interests

Finally, make certain you are earning as much as possible from your account balances. Ask your bank officer if the financial institution can automatically transfer amounts in excess of a specified quantity to an account that earns interest. For example, a Banco Popular FlexiCuenta de Negocios® account offers an investment unit that pays interest for the money automatically transferred from your checking account.

Follow these guidelines in order for you to have enough cash flow in hand. Remember that the money will allow you to comply with the requirements of your business. Learn more about how we can help you and your business grow.

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