Having a strong positive cash flow is the goal of every business. Knowing that you’ve got the resources available to run your business and handle any unexpected cash flow problems helps business owners sleep at night.
The question is, how do you maintain that flow once you’ve got it established? There are two scenarios that can lead to cash flow problems, and unfortunately, they aren’t uncommon. The first is having a stale cash flow projection. The second is overdue invoices. Worse, without diligence, you can encounter both problems together. And that can result in disaster for your business.
Cash Flow Problems Begin Here
The Risks of Stale Cash Flow Forecasts
While most companies forecast their cash flow, they don’t do it regularly and end up with stale projections. But does it really matter? Absolutely.
When your cash flow forecasts are old, they are inaccurate. They don’t match your current situation, and they haven’t taken into account any unknown expenses or unexpected inflows. And they certainly can’t indicate for you what the future holds.
Because of this, it’s difficult to see what is hurting or helping your cash flow. Are you being pulled down because of high-interest rate loans? Has one of your suppliers raised their price? Are there situations that are keeping you from having the cash to expand your business?
The Risks of Overdue Invoices
The other big risk to maintaining a stable cash flow is overdue invoices. Getting outstanding invoices paid is one of the biggest challenges businesses face, especially in recent years. It’s not uncommon for companies to use late payments as another form of credit, allowing them to better control their own cash flow to the detriment of yours.
The Perfect Storm
When these two problems are combined – stale cash flow projections and overdue invoices – it can spell disaster for a business.
With a drop in expected inflow due to unpaid invoices and lack of accurate visibility into your near-term cash flow, you have neither the ability to grow your business nor the cushion to deal with unexpected costs.
To prevent these issues, make sure you are committing time on a regular basis to updating and analyzing your cash flow projections. Your projections should be updated once a month to ensure they reflect your current cash position.
If you have customers that are habitually late with payments, reach out to them directly to find out what the issues are. Work with them to bring their payments in line or establish new terms to meet both their needs and yours.
Updating your projections and managing overdue payments are not low priority business tasks, but ones that can affect your ability to grow and manage the unexpected. Make the time to deal with these critical tasks to ensure your cash flow stability.
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