What to Know About Cash Flow
Cash flow, revenue, profit (oh my)
Ask most business owners what matters most, and they’ll usually say revenue. Or maybe profit. But we often see that cash flow—whether enough cash is available at the right time—is the real difference between whether a business can keep moving forward or not. To put it simply:
- Revenue shows activity.
- Profit shows performance.
- Cash flow shows survival.
Cash flow enables a business to sustain day-to-day operations, covering payroll, rent, inventory, and other expenses. And for many business owners, managing that flow of money is one of the biggest challenges they can face.
The pressure, often, doesn’t actually come from lack of sales. It comes from the gap between when money is earned and when it arrives. Customer payments may take 30, 45, or 60 days to come in, while fixed costs and vendor commitments follow their own calendar. When considering your own cash flow and how to improve it, ask yourself:
- When will I actually receive cash?
- How long does it take my customers to pay?
- Am I paying vendors quicker than cash comes in?
Time is money, money takes time
Business owners often underestimate how expensive it is to get paid slowly. But at the same time, they often pay invoices the moment they arrive. While that seems like the responsible approach to take, strategically timing your payments can improve your working capital, because it optimizes the timing of when cash is flowing in and when it’s flowing out.
Slow payments from your customers can create cash crunches, borrowing needs, and stress on payroll and operations. Even the way customers choose to pay can dramatically affect your cash flow.
But, by leveraging our receivables tools, optimizing your payment mix, and strategically timing your own payments, your company can:
- Preserve cash longer: Keeping cash in the business will improve your liquidity and allow you to use it to cover payroll, purchase inventory, or take advantage of things like early-buy discounts. It also gives you the opportunity to reinvest in things like marketing, product innovation, and new technology.
- Smooth out cash flow cycles: close the gap between customer payments and supplier bills so that cash inflows arrive before outflows occur, strengthening your working capital.
- Reduce the need for short-term borrowing: when you pay your bills too early, you may have to rely on credit lines, overdrafts, or short-term loans to cover the difference. But by aligning payments with due dates and keeping more internal cash, you can reduce your interest expense and improve your balance sheet.
Debt’s not a four-letter word
At least, not the bad kind. Many business owners avoid financing out of fear or misunderstanding, but using cash for big purchases like equipment, facility upgrades, or expansions can mean that you don’t have the funds on hand to cover day-to-day operations.
Just a few weeks of disrupted revenue can create a crisis if the right reserves aren’t built. Knowing when to finance and when to pay cash—and how credit lines can serve as a cash-flow stabilizer—is vital to effective cash flow management.
Another way to streamline your purchase order and expense reimbursement processes is to utilize a commercial credit card. When you use a commercial card, you’re essentially giving yourself a 45-day, interest-free loan each month.
You’ve got a friend in us
With so many components to cash flow, it can be overwhelming to know where to begin—or how to know for sure that you’re on track. We offer multiple solutions and services that we can tailor to your business model and help you strategically manage your cash flow, like:
- Receivables acceleration: how to speed up collecting customer payments
- Integrated payments: one system to automate the collection of all payments (ACH, checks, etc.), making the payments process more secure and efficient
- Commercial cards: one credit card for purchasing, travel, and entertainment to streamline purchase orders and expense reimbursement
- Payables timing strategies: how to delay payment to keep cash on hand
- Tools to help you get paid faster like Clover POS systems, ACH origination services, remote deposit capture, SmartSafe, and more
And even after you’ve got cash flow under control, we’re here to help as your business grows and evolves. Many businesses leave their banking setup the same as they grow, which can lead to issues like outdated merchant solutions, inefficient cash handling, not enough separation of funds, and lack of fraud protection.
If you haven’t reviewed your cash flow strategy in some time, consider an annual financial checkup and a cash flow analysis consultation. We’ll review your current financial strategy and make sure it’s where it needs to be to get you to your future goals. Click here to find your local business banker and start a conversation.
