InTents August/September 2020 - 40

business | management

Properly managing the
operation's cash flow
allows the cash flow
gap to be narrowed
or closed completely
before it reaches the
crisis stage.

be appropriate. Giving away small extra
services, on the other hand, might work.
Incentives might include the following:
* Small additional services
* Discounts for early payments
(balances paid before a
certain date, or yearly invoice
versus monthly)
* Greater ϐlexibility (for instance,
a down payment required to book
a delivery date)
Some customers are just late payers
and need to be nudged. The way that
dunning is handled can, however,
greatly affect the collection process.
Timing and the quality of message
content are the two main factors in the
success or failure of these prods.
How the business gets paid not
only affects its proϐitability but also
its cash ϐlow. For example, while still
common, paper checks are slow, highly
susceptible to fraud and bear hidden
costs such as additional work and
back ofϐice processing. They are also
inadequate for recurring invoicing.
Something as simple as asking
customers to switch to electronic funds
transfer (EFT) or Automated Clearing
House (ACH) payments (and providing
them incentives to do so) can result in
faster, more secure and reliable, and
cheaper payments.

Improving cash flow
Proϐit doesn't equate to cash ϐlow
because, as mentioned, cash ϐlow and
proϐit are not the same. There are many
factors that make up cash ϐlow, such as
inventory, taxes, expenses, accounts
payable and accounts receivable.
The proper management of cash
outϐlows requires tracking and managing
the operation's liabilities. Managing
cash outϐlows also means following one
simple but basic rule: Pay the operation's
bills on time-but never before they
are due.
40 intents

0820IT_p34_CV4.indd 40

Having a cash reserve can help any
business survive the gaps in cash ϐlow.
Applying for a line of credit from the
bank is one way to build that cash
reserve. Once a business is qualiϐied,
lenders will grant a predetermined
credit limit that can be withdrawn from
when needed.
Yet another option might be frugality.
Aim to keep the business lean by
constantly evaluating it. Is the purchase
of new equipment really necessary?
Is hiring new employees really costeffective? Weighing the pros and cons
of all business needs and wants enables
a business to retain cash ϐlow and avoid
unnecessary expenses.

Cash flow gaps
Remember, however, the cash ϐlow gap
in most businesses represents only
an outϐlow of cash that might not be
covered by a cash inϐlow for weeks,
months or even years. Any business,
large or small, can experience a cash
ϐlow gap-it doesn't necessarily mean
the business is in ϐinancial trouble.
In fact, some cash ϐlow gaps are
created intentionally. That is, a business
will sometimes purposefully spend
more cash to achieve some other
ϐinancial result. The business might, for
example, spend extra cash to purchase
additional inventory, to take advantage
of a quantity or early payment discount,
or to expand its business.
Cash ϐlow gaps are often ϐilled by
external ϐinancing sources: revolving
lines of credit, bank loans and trade
credit are just a few external ϐinancing
options available to most businesses.

Cash flow loans
Cash ϐlow-based loans rely on the
value of the operation's cash ϐlow. If the
operation has a strong cash ϐlow stream,
it can be used to get signiϐicant loan
amounts even if there are few business

aug-sept 2020

7/21/20 10:59 AM



InTents August/September 2020

Table of Contents for the Digital Edition of InTents August/September 2020

InTents August/September 2020 - Cover1
InTents August/September 2020 - Cover2
InTents August/September 2020 - 1
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