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7 Cash Management Pitfalls to Avoid in Your Business

  • Highlights

  • Don't let your unpaid invoices and outstanding bills accumulate

  • Ensure that you provide convenient processes for payments

  • Make sure to organize business financing in advance

  • Reserve cash for emergencies and big expenses

Cash management is a learned skill, and to run your business effectively, it is something you need to train yourself to do. Improper cash management may lead to insufficient finances for daily operations, or lack of funds when your business needs money to make the most of new sales opportunities.
Here are the most common cash management mistakes that you should steer clear of:

1.Letting your unpaid invoices/outstanding bills accumulate

Implementing a proper system for managing invoices can work wonders for the financial cycle of your business. If funds remain uncollected or are collected slower than needed, your bill payments will be delayed, and so will any reinvestments you wish to make in the company. To avoid this, you can start invoicing electronically and accept electronic payments. You can also set a clear due date for invoices and offer early bird payment incentives.

2. Not providing convenient processes for payments

If you have limited avenues of collecting payments from clients, you are slowing the payment process. Proper management of deposits is very important for a business. It can play a major role in stabilizing business cash flow. One of the most comfortable ways to make deposits is through a remote deposit service, which allows for check scanning from your desktop computer. For collecting payments, you can make use of Lockbox services, which automate the receivables process for the bigger businesses that get a high number of check payments.

3. Not organizing business financing in advance

Not finding the right finance at the right time can cause your business to stumble, and prove to be too expensive as well. Availing the right financing option to fund purchases of needed machinery, fuel working capital and put your expansion plans in motion is the most crucial part of cash management. If you can, try hiring a financial advisor to help you choose between the various available alternatives. Usually, the best and most convenient option is a business loan. Some NBFCs offer collateral-free loans that feature instant approvals and competitive interest rates for the most comfortable financing experience. For working capital financing and equipment purchase, you can even opt for customized working capital loans and machinery loans.

Factors to keep in mind when looking for a Business Loan

4. Not reserving cash for emergencies and big expenses

All businesses, whether seasonal or not, experience ebbs and flows in income. That is why it becomes necessary for them to reserve cash for unforeseen expenses and emergencies or even for planned purchase of assets like machinery. If your business experiences a good month or quarter, make sure you stock the profits for a rainy day by investing them in low-risk schemes.

Additional Read: Tips To Expand Your Manufacturing Business

5. Paying your bills earlier than necessary

Though you may be conscientious about paying your bills, paying them bills too soon affects your business cash flow adversely. The thing to remember when paying bills is that you should do it slowly, but on time. An exception to this is if the provider offers an early bird discount. One easy way to do this is to try spreading your bill payments evenly throughout the month. You can also check with the local financial institutions to see if they offer credit cards with interest-free EMIs, so that it becomes easier to pay for business resources as and when needed.

6. Not accounting for all outgoing and incoming cash

Record-keeping is a vital part of cash management. Unless you keep a detailed account of all outgoing and incoming cash flow, you may never realize whether a particular method of cash management is proving to be beneficial. Try keeping organized records of your company’s financial data by setting aside some time for it every day.

7. Not keeping sufficient working capital on hand

All businesses experience cash crunches. They may occur during a slow season, while making capital expenditures, or even during payroll time. To counter a shortage of cash during such important times, it is necessary to always keep enough working capital on hand. You can do this by setting aside cash at regular intervals during times of surplus, or with a working capital loan.

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