How Can Small Businesses Better Manage Their Cash Flow?


Through cash management, you’ll be able to monitor how cash is flowing into and out of your business. If you have idle funds available, then you can use that to generate some passive income as well. You’ll need to collect from the customers on time, so you can then pay your bills in a timely manner. If you don’t have enough liquid capital available when you need it, then this could end up affecting your business operations.

Here are some cash flow management tips that can help your small business manage your finances better:

1. Paying Bills On Time

In order to ensure you have cash on hand, avoid paying your bills until the due date actually arrives. With the money you have on hand, you can pay your employees or ensure your taxes are paid. Should the seller not provide you with a special discount for early payment, consider delaying your payments till the due date.

2. Invoicing Customers

Find ways to accelerate the collections that you’re making. One way to do this is by issuing your invoices and sending them to customers as soon as you can. Ask your customers to pay their invoices quickly as well. It’s best if you prepare your invoice and send it within 48 hours of finishing the job.

3. Reconciling Bank Accounts

Bank reconciliations will need to be done at least once every month. This helps ensure that the cash ledger as well as the bank account is properly monitored. When you receive your bank statements, it’s time to reconcile your bank accounts. First determine what the status of your outstanding checks are, as well as your deposits. Then, update your books, bank credits as well as debits.

4. Line Of Credits

Your line of credit is the borrowing limit, which you can make use of, to run your business. When you have a line of credit, your business gains greater flexibility when it comes to managing payments through cash. Remember that both banks, as well as credit unions, are likely to charge interest, so use your credit in a wise manner.

5. Checks And Electronic Payments

You can ask your customers to send you checks or electronic payments. This helps you reduce the amount of cash within the premises of your business. When you keep cash lying around in your business premises, there’s always the risk that a thief might try to break in. Things like fire or water can also damage cash that’s lying around.

With the help of electronic payments, you don’t have to worry about theft. You’ll also receive your payments immediately.

Consider investing in cheap business insurance as well. This is as running a business exposes you to certain risk factors, such as getting sued by customers. When you have cheap business insurance, you can better protect your business as well as your finances. To learn more about cheap business insurance, please click here.

6. Depositing Cash

You should go to the bank daily to deposit your collections for the day. When you make a deposit, you create a paper trail regarding your finances. You’ll be able to match your bank and book receipts as well.

7. Investing Idle Cash

You shouldn’t hold a lot of cash either in your business premises or in your checking account. This can help your business access easy liquid capital, but you’ll be losing out on making passive income from your idle cash.

Invest your idle cash so that you’re able to generate passive income without needing to do anything.

8. Create A Petty Cash Fund

This kind of fund provides you with easy access to your money, should you find yourself needing to pay incidental expenses. If the expense in question is so small that you don’t want to write a check, you can use your cash fund for petty expenses.

9. Handling And Recording Cash

Duties that are not compatible with your business will need to be segregated. When it comes to controlling cash, the person who controls handing out the cash or signing the checks should be different from the person recording receipts. For some small businesses, segregating these duties might not be financially feasible.

In such cases, the business owner should be actively involved in monitoring their cash flow.

10. Cash Conversion Cycles

This is a metric related to your working capital, that shows you several important things about your cash flow. You’ll know what the average amount of time is, between the time you spend cash to buy inventory, and you get credit from customers who have paid.

You essentially find out how long it would take for your business to convert the money that was invested into purchasing inventory, back into cash for the business.


When your business has cash at hand, it helps you pay for goods and services. When you properly manage your cash flow, you can track both the inflows and outflows to your business account. As a small business owner, it’s important that you participate in the cash flow management process. This helps ensure that your money is accounted for and that your business finances can be saved from misappropriation or theft.

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