Eric Dalius Tells How Small Businesses can Manage Cash Flow Problems

Cash flow management is critical for any business, and more so for small businesses that find it extremely challenging to maintain a steady stream of cash to meet the expenses of business operations. Most entrepreneurs who operate on a limited budget find it extremely difficult to pay the bills while they wait for the check to arrive. Entrepreneurs must have a good handle on their company's cash flow, which most of them try to have. It does not always give the right results, especially when most companies suffer from the problem of delayed invoicing, which is one of the reasons for cash problems. EJ Dalius, a successful marketing veteran who has seen small businesses from close quarters, says that It is common for entrepreneurs around the world to face cash flow problems, and they must learn the ways of managing it better.

Eric Dalius explains why cash is critical for businesses

Eric J Dalius says that no business can survive if the cash flow is not smooth. While larger companies with better access to finances can cope with cash flow problems effectively, for small businesses that have limited resources, the challenge is much more to ensure a steady flow of cash. To sustain the business operations, entrepreneurs must be on their toes to ensure that there are steady inflow and outflow of the capital of a considerable amount throughout the business cycle. Money enhances the buying power of companies as they can buy raw materials and other items necessary for boosting the turnover and thereby generate more money to sustain the business and make it grow.

While being sensitive to cash flow, entrepreneurs will realize that measuring business efficiency only in terms of output is not the correct approach to judge the health of a business. It is significant to pay attention to various other factors like managing payments and managing receivables, which are critical for maintaining a proper balance of cash flow. There are some other factors too that must be under the constant scrutiny of entrepreneurs to avoid the pitfalls of cash crunch that can heavily retard business growth.

In this article, we will discuss the factors that impede cash flow and how to overcome it.

Receivables management

Receivables are the money due to the company on account of sales and other sources of earning as it can happen if the company has some real estate given on rent. Typically, the businesses provide services to a customer or client who owes the payment per terms of business. Most companies offer credit terms to customers or clients, and it is the norm in the commercial world, with only a few exceptions of businesses receiving advance payments. Until the receivables are paid, it shows as outstanding receivables in the accounts. The money locked up as outstanding receivables is mostly responsible for cash flow problems for companies that do not have enough cash reserve and are unable to meet up the operational expenses.

Companies must have a reliable system of tracking payments and send reminders and follow up with customers to ensure that the payments are received within the stipulated time. If needed, they can review the credit policy and negotiate for shorter credit cycles to improve cash flow.

Managing payments

The general practice for small businesses is to raise an invoice on customers for sales or services of a specified date and expect the payment to come in within the stipulated credit period. While it is easy to blame customers for delayed payment, it is also true that delayed invoicing is also a reason for the late receipt of payment.

Even if customers make the payment on time, small businesses still face the hardship of receiving payment late. Does this sound surprising? Not at all because the truth is that most small business owners (66%) have revealed that the greatest impact on the company's cash flow occurs from the time it takes for money to process after receiving payment. Almost a third of the entrepreneurs or small business owners who participated in the study told that the waiting time for getting the money in hand is more than 30 days after receiving payment.

Business owners must factor this into the credit schemes that they offer to customers, which is the only way to reduce the stress on cash flow.

Beware of bad debts

While it is important to take aggressive measures to increase sales for business growth, unless it translates into a fruitful transaction by ensuring timely receipt of payments, there are threats to the cash flow, which can stifle growth. Chasing outstanding payment may not always work, especially if business owners are not careful in choosing dependable customers. Even if there are ways to cope with delayed payments, the biggest risk arises if customers fail to make payments and turn bankrupt. Sometimes it might also happen that the cost of pursuing outstanding payments is higher than the collectible. Such outstanding payments show up as bad debts with no chances of recovery and strain the cash flow.

Being choosy in selecting customers is a safe way to ensure that you have only dependable customers who will make payments instead of sulking.

Weak marketing and sales

Your sales drive the cash flow, and you must have a strong marketing strategy to drive sales. Small businesses must adapt sound marketing strategies, many of which are quite affordable to ensure healthy sales that ensure a smooth rollover of funds and keeps the cash flow buoyant. In addition to marketing, you must also consider other factors like capacity, labor cost, and product lineup, which can be causes for poor sales.

The above factors are significant causes for straining the cash flow, but poor management decisions often compound the problem. Some businesses build a high inventory of raw materials to maintain steady operations, but the money locked up in inventory puts enormous stress on cash flow. Since small companies find it extremely hard to hold on to cash, maintaining optimal inventory will help to avoid cash flow problems.