September 02, 2020
Coronavirus (Covid-19) has created a havoc around the world. A disease which looked simple on papers took lives of around 20 million people globally. It broke the backbone of world economy which is still in the process of redemption. Almost all the countries are under the threat and hoping to bring the life back into normalcy. In this pandemic situation, various businesses are finding it difficult to survive in the market. However, employers are taking necessary steps and initiatives to protect their employees, understand the risk and managing the supply chain.
In such a situation, it is the responsibility of organizations to make a strategy for cash management flow in regards to business continuity and lower the risk. It is important to manage the cash flow for long running of business and provide uninterrupted services to our clients.
Cash Flow Management:
Businesses are currently suffering for profitability. Therefore, to stay in the market they should well plan and manage their cash flow. Getting good with cash flow is one of the best things you can do for your business. Before planning, it is must that you should understand what is actually cash flow how to manage?
Cash flow is the amount of money, cash and non-cash, traveling in and out of a business. There are two types of cash flow: Positive and Negative Cash Flow. Positive cash flow is something in which more money comes in instead of going out and Negative Cash flow is vice-versa.
Ways to improve Cash Flow:
The below listed points helps a business to improve its Cash flow:
- Understand how much cash is required and ensure your lines of credit remains available.
- Understand the financial risk and the required strategy to be prepared to manage supply chain risk.
- High Level financial risk assessments should be conducted on any critical, sole source suppliers to identify the issues before they become major problems.
- Selling assets and then leasing them back is one way to raise emergency cash.
- It is always good to consider alternate and non-traditional revenue streams.
- Always prioritize the necessary things while keeping cash flow forecasts in mind.
- Inventory safety stock parameters will most likely need to be updated to reflect the increased demand and supply-side volatility, which will have the effect of increasing overall inventory levels.
- Different strategies and tactics need to get prepared for generating faster cash flow from the receivables.
- The best way to preserve working capital is to take longer to pay the suppliers which means extend payables in intelligent manner.
- Focus on customer-specific payment performance and identify companies that may be changing their payment practices.
- It is always wise decision to double sure about paying the right amount for the goods and services procured and collecting the right amount for goods and services sold.
- Prepare cash flow statement which will keep a track of money coming in and out of a business over an accounting period. This helps in proper tracking of your cash.
- Do frequent inventory checks to determine what’s selling and what’s not.
- Preserve working capital and cash flow management is to pay suppliers less. Some suppliers may have early pay discounts you aren’t aware of.
- To maximize your cash flow, put money into a high-interest business savings account.
- If you have poor cash flow, consider raising the price of your products.
The above points indicate that Cash flow is important in cost management because it helps to plan and control the budget of a business. The main objective of managing cash flow is to track and analyse the amount of cash received minus business expenses.