Managing your business’ cash is not something you should think about every once in a while. You must manage it every single day because cash fuels your business. It’s your business’ lifeblood. On a daily basis you should check how much money your business took in, how much it spent, and the status of your receivables. If you don’t do all of these things, you risk being blindsided by a cash shortfall, which could cripple your business.
If you don’t have the time to manage your business’ cash day to day, give that responsibility to someone who has the skills to do it and who you can trust to do it well.
Many new businesses do not pay enough attention to cash management because they are overly focused on generating sales.
There are several aspects to effective cash management. For example:
- Use credit applications to figure out to whom you will extend credit and how much credit you will extend. Ask each of your customers to complete a credit application and then evaluate the information on each application using a credit scoring process.
- Make timely billing a priority. The quicker you bill, the faster you will get paid and the less likely that you will have a problem with cash. Although a lot of businesses invoice once a week, I recommend that you invoice every day.
- Understand how your customers handle their accounts payable and what you must do to ensure that they pay you as quickly as possible.
- Monitor your accounts receivables on a daily basis and do not let bad debt accumulate. Even one past due account can have a big impact on your business’ financial health.
- Use an electronic accounting system. If you don’t have one, get one!
- Manage your credit relationships with your carriers as aggressively as you manage your shipper relationships.