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Cape Town - Many business advisers will tell you that the lifeblood of your business is cash flow and that it will ultimately determine the success of your business.
Cash flow is the heartbeat of any small and medium-sized enterprise (SME) and if your business does not have cash to pay vendors, it is unlikely to remain open for long, warns Zak Sivalingum, Head of Global Business Development for FNB Business.
Even though cash flow management is the least exciting part of doing business, it remains one of the critical success factors, he says.
“Managing cash flow is a matter of discipline. If you want a quick fix for your small business, you can use a credit card to pay suppliers.
"However, if you want to make strategic changes, your focus should be to find flexible financing solutions to help improve management of your working capital or cash flow."
The important factor is to strike a balance between money coming into and going out of your business, through the following tactics:
1. Establish close relations with your bank
Many a cash flow storm often hit a business when it least expects it, so it is important to have a ‘go to’ financial partner that you have a good relationship with, and one which fully understands your business. Communicate with your banker and let them know what is happening within your business.
2. Consider alternative funding
Bank loans and overdrafts are not the only source of working capital. For instance, invoice discounting (or ‘factoring’) enables a company to grow its facility as its business grows, and is preferable to an overdraft. Do not limit your business to the conventional forms of funding; explore the range of working capital solutions your bank offers.
3. Evaluate your invoice payment terms
If you are having trouble with cash flow, try to align your customer and supplier terms of payment. If your average payable (money to be paid by you) is 23 days and your average receivable (money due to you) is 48 days - that is 25 days that you have to cover in your overdraft and this could hinder business cash flow if you do not close the gap.
4. Make cash flow a company wide priority
If improving cash flow is a business priority, you should consider aligning it with your employees’ key performance indicators. It is not just the finance department which is responsible for managing bad debts - sales personnel or relationship managers are also important players in the process.
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