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Manage Your Cash Flow to Your Advantage

by Jim Martin

Slowing your firm’s cash outflow lets you to hold onto cash longer so you have more money available and more flexibility in your business. Here are some ways to manage cash flow.

Accounting Software. Today’s accounting software can monitor accounts payable to let you keep cash in your account as long as possible while meeting all your payment due dates. Regardless of due date, enter payables into your system when they’re received, with the invoice date and the date payment is due. This will you see at a glance how much you owe and how much cash is available to you at any given time. It typically takes 5 business days for a check to reach the recipient by mail. When you mail a check, count back 5 business days from the due date, add an extra day for safety and mail the check that day. You can do this even if your software generates the checks. Check the instructions for your software.

Electronic Invoice Payment and Presentment (EIPP). If your vendors offer EIPP, select this option to receive invoices by email. You can then enter them into your payables system and schedule electronic payment. You won’t worry about your check arriving by the due date and optimize your cash flow by scheduling the debit on the required payment date.

Credit Cards. Business credit cards can help you slow cash outflow. If a bill (such as a utility bill) is due in 30 days, wait until it is almost due, then pay it with your business credit card. When the credit card bill is due (25 days later), pay it off. This extends your payment period to 55 days rather than 30. For this, you need a credit card with a grace period, (interest free until the due date) and you must pay it off in full each month. You might earn mileage or cash rewards for using the card, which can help you conserve even more cash.

ACH Credit. ACH credit can schedule payments to keep your cash as long as possible and know when it will leave your account. Instead of withdrawing (or debiting) money from another’s account (ACH debit), ACH credit allows you to credit another’s account for a certain amount on a specific date. It is similar to online bill payment, but in this case, you originate the payment and know the receiving party’s bank routing number and bank account number. Most banks offer ACH debit and credit to small businesses at little or no cost. You can use ACH credit to pay your vendors or your employees.

Will this work for you? Not all of these tactics will work for every business, but you should be able to use some of them to manage your cash outflow more effectively. Consider the ongoing payments your business has, and whether one of the above tools can be used to help decelerate these cash outflows.

A SCORE Mentor can help you determine your next steps. SCORE has over 13,000 mentors with small business know-how who want to provide you free business advice.