Keep the cash flowing

For small businesses, the old saying that “cash is king” still holds true. Having enough cash on hand to make payroll, purchase supplies and cover other operating expenses every month is essential to the success of your business. This all starts with maintaining positive cash flow.

What is positive cash flow?

Essentially, positive cash flow means there is more money coming in to the business each month than leaving it. Cash flow is often confused with a company’s profits, but they are actually quite different.

A profitable month in any business is good news, but, if invoice terms are net 30 days, the business can still be short on cash as it awaits payment. So it’s important for merchants to monitor both their cash flow statements as well as profit and loss statements to get a true picture of the health of the business.

How can small businesses avoid cash flow issues?

Cash flow can be an issue periodically for most merchants, but there are proven strategies to improve and prevent shortages. The following are best practices for managing cash flow that many merchants use to solve their cash flow problems:

Understand where your cash flow stands. The more data you can gather in one place, the better insight you will have to help you make decisions. One of the easiest ways to harness all that data is through technology. Some solutions track a merchant’s latest financial data, create cash flow statements and include predictive analytics that create cash flow forecasts.

Commerce360 from Worldpay, for example, is an all-in-one business management solution that gives merchants a 360-degree view of their businesses. By gathering all payment, sales, expenses and other business data in one place, Commerce360 uses advanced reporting and analytics tools to provide real-time information and insights that empower merchants to track their cash flow and make adjustments as needed.

Optimize invoicing for faster payments. Invoice management is key to positive cash flow. The sooner an invoice goes out to a customer, the faster the business gets paid. Invoicing on time, immediately after products are sold or services are rendered, is paramount.

Even businesses with payment terms of 30 days or longer can motivate customers to pay early by offering discounts or rewards to those who beat the deadline. Digital payments enable faster receipt of money. For example, merchants can include a QR code in their invoices, and they can email or text those documents for faster, easier payments. Using solutions like Commerce360, they also can take advantage of built-in tools like recurring invoice support and automatic notifications to ease the administrative burden.

Manage inventory and control expenses. Merchants who avoid overstocking are often successful in minimizing waste and keeping costs in check while improving cash flow.

Other tactics for managing business expenses may include cutting back on nonessential purchases, engaging in payment-term negotiations with suppliers, and leasing equipment instead of purchasing it to stretch the payments out over time and preserve more cash on hand.

Again, technology can be a powerful tool to help merchants manage inventory. Commerce360 provides merchants with valuable insights for optimizing inventory through a central platform for tracking inventory in real time, forecasting future demand, receiving automatic alerts when stock runs low and managing shipments across the entire business, even if the merchant has multiple warehouses, physical locations and online sales channels.

Build a cash reserve for lean months or emergencies. One of the simplest things to do to help cash flow is to be saving always, but that’s easier said than done, especially during seasonal dips.

Nevertheless, merchants who put money away can be better insulated against troubled times. Creating separate savings accounts with subaccounts designated for specific goals can also help merchants track their savings progress.

For more ideas to manage cash flow, or to learn more about Commerce360, contact your Worldpay representative today.