Back October 12, 2016

Keep the Balance

Cash flow is about movement. Constant inflows and outflows are what keeps the business going. In an ideal world, they would be perfectly synchronized, so that you always have enough cash to cover payables in due time. The blunt truth is that ideal worlds exist only in theory, mostly to remind us that we have work to do.

Keeping a balanced cash flow means to work it so that on every payment date you have enough money available. This implies cleverly planning and negotiating terms of payment, salary dates, and receivables.

Here are some ideas you may find handy:

  • Keep receivables no later than 90 days. The most convenient situation is to cash in within 15 to 30 days since invoicing. Some projects, however, may require later payment dates; in these cases bear in mind that delaying receivables with more than 3 months may put the business in peril.
  • Invoice as soon as the service or product is delivered. Some clients may be late anyway, so don’t expand the delay yourself.
  • Where possible, ask for advance payments from your clients.
  • Some bills have fixed due dates which you cannot negotiate, but when possible, try not to set them sooner than the predicted inflows. After all, you need to have the cash for it.
  • Don’t pay salaries all on the same day. A large amount of outflow may cause the cash flow to go negative. If you practice biweekly payments, schedule salaries for half of the team in one week, the other half in the following week.
  • Forecast cash flow. There is no better way to avoid trouble than anticipating. Plan ahead payables and receivable at the extent of what you can control. Stay away from the 0 cash threshold (check the ThinkOut platform to see how that works).

These are merely general guidelines. Get creative in adapting them to your unique business. The main idea is to forecast and schedule receivable and payables so that the business doesn’t run out of cash.