Cash flow is important for any company. The amount of available cash your business has on hand at any given time provides an indication of your company's ability to operate on a day-to-day basis and meet its obligations. The more days that your business goes without cash, the longer it takes to you to pay your creditors and keep operations going. Fortunately, there are different ways to shorten your cash cycle.
You can use your relationship with your suppliers to create faster turnaround on your cash flow cycle. You can do this by getting your suppliers to accept a longer debt repayment period than what is normal in accounts receivable relationships. Rather than having a 30- or 60-day repayment period, getting the creditors to extend the repayment period beyond that will allow you to have more cash on hand without having to pay your creditors as often. Generally, this type of approach will work only if your business is substantially larger than your suppliers' and they are heavily dependent upon your business.
You can use your existing relationship with your customers to eliminate the time between cash flow cycles. By understanding who your customers are and when they are paid, for example, you can time your billing procedures to coincide with your customers' regular pay cycle. You can also entice customer to pay faster by offering them some type of incentive to pay sooner rather than later. You can also get your bills out to your customers sooner to help speed up the pay process.
Many people generally play roles in the billing and invoicing process. It is possible in many cases to increase the overall speed of the cash flow cycle by increasing the efficiency of employees who are in control of the process. The invoice creation process should be automated, if possible, in order to ensure maximum efficiency in the billing process. This will lead to faster turnaround times on pay received from those who owe you money.
Inventory improvement is another way that some businesses decrease the time between cash cycles. Inventory ties up a significant portion of your potential working capital until it is sold. Businesses that make use of inventory optimization technologies and collaboration tools can cut down on their lag time between cash flow cycles
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