Key Principles of Cash Management
Speed Up Collection of Receivables
Receivables refer to completed sales for which payment has not been received yet. Businesses often sell goods on credit with credit terms varying from 30 to 90 days, sometimes extending up to 120 days. For efficient cash management, timely and predictable cash inflows are crucial. Companies should aim to shorten their revenue collection period and implement effective follow-up mechanisms to collect outstanding payments faster.
Offering early payment discounts and incentives to customers can significantly improve cash flow. Even a small incentive, like a 2% discount, can motivate clients to settle their bills sooner. Your accounts receivable team should act promptly on late payments and reevaluate underperforming contracts to maintain a healthy cash flow.
Cash flow Forecasting
Use Advanced Technology
Plan for the Unexpected
Always have a contingency plan in place to prepare for unforeseen circumstances that could lead to a cash flow crisis. Having a well-thought-out backup plan, including a reserve of cash, will provide you with peace of mind in case of a worst-case scenario.