Cash is king for any business. If a company doesn’t have a steady stream of cash coming in at regular intervals, it is bound to run into all kinds of trouble. Without steady cash flow, you will be unable to pay your suppliers, pay the wages of your employees, keep up SLAs, or even shut down after audits and pay hefty fines for tax discrepancies. It is fair to say, Cash Flow Management is pivotal for the success of any business.
What is Cash Flow?
Cash flow refers to the funds coming in and out of your business. Organizations typically track their cash flow at regular intervals (weekly, monthly or quarterly). Essentially, positive cash flow is when the amount of money coming into your business via sales, accounts receivable, etc. exceeds the amount of money leaving your business via accounts payable, petty expenses, employee wages, etc. While, negative cash flow refers to situations when the amount of money outgoing is more than the amount incoming.
It is important to mention here that simply looking at your profit and loss statements isn’t really the best way to assess your cash flow. This is because efficient Cash Flow Management requires a thorough understanding of what drives your cash flow such as: accounts receivable, inventory management, accounts payable, capital expenses, tax payable, etc.
Problems with Cash Flow Management
Without optimal visibility into your processes and operations, your business can run into various Cash Flow Management problems. Here are a few of the most common cash flow related challenges facing business owners today.
1) Excess Overheads: Overhead refers to expenses that do not pertain to the selling of your products and services directly like rent, phone bills, utilities, etc.
2) Late Invoice Payments: As a small or medium-sized business, the late delivery of invoices is something that you just can’t sustain. You need proper payment terms and regular payments to keep your business running.
3) Improper Inventory Management: Managing your inventory is a crucial part of managing your cash flow. You do not want to purchase or manufacture more than what you can sell, because an inventory overflow can take up a considerable chunk of your cash flow.
4) Bad debts: Bad debts are unrecoverable sums of money that are owed to the business. 30/60/90-day credit periods before payments might be unsustainable for a small business. You need to be able to track when payments are due and have proper debt collection management practices in place.
5) Insufficient margins: Smaller businesses often sell their products or services at such low margins to take market share from their competitors, that they don’t recoup enough to cover their operational expenses.
How to Solve Cash Flow Problems?
Managing your cash flow can become tedious and cumbersome, and if not done correctly can impact your bottom-line. The most efficient way to solve all the issues and optimize your cash flow processes is by investing in a robust financial management software like IFS for the enterprise. There are many benefits of IFS ERP, and IFS Applications comes with a dedicated financial management module with IFS Cash Flow. IFS Cash Flow lets you conduct flexible liquidity analyses based on multiple scenarios. It offers complete visibility into all processes including sales orders, purchase orders, accounts receivable and accounts payable, that help create accurate cash projections. IFS ERP enables optimal Cash Flow Management and strategic decision-making, and also offers support for multiple currencies and helps you comply with various compliance and regulatory measures.
Manual book-keeping and financial management can hurt your bottom-line and ultimately lead to huge losses or the closure of your company. Investing in a robust enterprise suite like IFS ERP will help you gain visibility and manage your expenses better than you could ever do manually or through disparate software. Want to learn more about how to get started with managing your finances? Give us a call at ProV.
ProV offers some of the best IFS Applications pricing and provides best-in-class services for IFS implementations, IFS software support, and IFS customizations. We are a multiple award-winning partner for IFS products and services that help simplify implementation, integration, update, or customization of your software when you need it most. Take our FREE Consultation today to get started!