Are you in a “no cash situation” in your day-to-day life? Well, in that case, cash flow management is the best possible way out of your problems.
We all know in times of crisis, cash is king. How well a business oversees income, can in huge part decides if the entryways stay open or whether the business for all time closes.
As Neil Blumenthal said, “For better or worse, cash is the oxygen of your business, and you can’t last long in any environment without it.”
Cash is not just the money in physical form. ‘Cash’ might refer either to cash in the form of currency or just in the other forms such as cheques, drafts, deposits, among others.
And when people say cash is king, it’s not king if it just sits there and never does anything.
What is cash flow management
Basically cash flow management is a vast branch of finance (money) that alludes to an expansive region of account including the assortment, taking care of, and use of money. It includes evaluating market liquidity, income, and speculations.
It essentially infers ensuring that all the business created incomes are adequately controlled and used in the most ideal accessible way. It basically implies making sure that all the business generated revenues are effectively controlled and utilized in the best possible available manner.
It requires making optimum use of cash available with the company and maximizing the return on any spare fund not currently required by the company.
Proper cash flow management could essentially help a business to avoid insolvency and handle unexpected costs.
It empowers organizations to maintain a strategic distance from bankruptcy and handle sudden expenses. New procedures and innovation are routinely grown with the goal that money supervisors must have the option to adjust rapidly.
Advantages of cash flow management
- Estimating the speed of the working capital cycle.
- Finding embezzlement of cash.
- To find a way out of shortness of working capital.
- To fast track, the company’s operations.
- To utilize the present estimation of cash all the more viably.
- It helps in finding the best short term investments.
We all know that idle money does not create any profits. There are a number of short-term cash flow management instruments accessible to the individual for building up a sound cash flow management program.
These alternatives could even include the money market mutual funds, and certificates of deposit. But one investing money into any venture one should keep in mind that the association must guarantee liquidity and ideal returns. Hence, this choice should be taken with judiciousness.
Methods to accelerate cash inflows
- Prompt payment by customers.
- Converting payments to cash
- Decentralization of collections.
- Using Lock Box Systems
Methods to slow payments
- Making payments on the last date
- Making payment through Cheques
- Centralizing all payments
- Using inter bank transfer.
But at the same time, there are many problems with cash flow management which leads to the decline of any successful business like controlling the cash level, in-flow cash, out-flow cash.
To summarize, there has to be a harmony between having an excess of money available, out of safety measure, and having an insufficient flexibly. In the event that a business has a lot of money, it is passing up chances to put away the money and produce an extra profit.
Then again, in the event that it doesn’t have a satisfactory gracefully of money, it should get the cash, and pay a premium, or auction its fluid speculations to produce the money it needs. Effective cash flow management can be really very helpful in striking the correct balance.
The main objectives of cash flow management
- Mobilizing cash. Getting the cash in as fast as possible.
- Releasing the cash at the last possible moment.
- Managing financial matters of the company.
- To generate internal and external funds.
- Investing cash in something that gives you more returns. These things may include investments in real estate, buying new equipment and machinery, and originating stock repurchases.