Tips to Manage Your Business Cash Flow

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Tips to Manage Your Business Cash Flow

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 As an entrepreneur you have to monitor the financial health of your business consistently to meet its financial obligations on time.  You can easily assess the financial health of your business by measuring cash flow – the difference between the cash inflow and cash outflow over a specific period of time.  The business cash flow can be either positive or negative.

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 A positive cash flow will help you to meet the short-term and long-term financial obligation in addition to sustaining growth.  On the other hand a negative cash flow will compel you to borrow funds to meet the immediate financial obligations of the business.  You must explore ways to maintain positive cash flow to make your business profitable.  You can maintain a positive cash flow by focusing on a number of factors.

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4 Tips to Sustain Positive Business Cash Flow in the Long Run 1 Maintain Some Cash Reserve Often entrepreneurs utilize the surplus cash to improve business processes and operations. For instance many businessmen invest the surplus funds in delivery vans equipments or furniture. The investment often leads to cash shortfall and negative cash flow . You must maintain some cash reserve to meet the short-term financial obligations of the business on time. The reserve can be maintained in two distinct forms – cash in hand and cash at bank.

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2 Reduce Receivable Cycles  You must collect receivables on time to maintain a positive cash inflow . It is always important to keep the account receivable cycles short to ensure cash inflow .  While selling goods on credit you must restrict the receivable cycles from 30 to 60 days.  You can even persuade customers to buy goods on cash by offering attractive discounts. The short account receivable cycles will help you to avoid cash shortfall in the short term.

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3 Extend Payable Cycles  In addition to shortening the account receivable cycles you also need to extend account payable cycles.  It is always a good idea to extend the payable cycles to 90 to 60 days to reduce cash outflow .  However you must remember that certain creditors may charge late fees. You must keep in mind the terms of sales agreement while extending the payable cycles.

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4 Pay Bills on Time  You can always increase cash inflow by extending account payable cycles.  But you must explore ways to extend the payable cycles without increasing cash outflow .  There are many creditors and suppliers who charge late fees. The late fees will require you to pay more and increase cash outflow .  You must make it a practice to pay your bills and debts on time to maintain a positive cash flow .

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