Seven cash management pitfalls to avoid

Cash management is a learned skill and is something you need to train yourself to do to run your business effectively. Improper cash management may lead to insufficient finances for daily operations or 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 unpaid invoices/ outstanding bills accumulate

Implementing a proper invoice management system can work wonders for the financial cycle of your business. If dues are uncollected or delayed, your bill payments will be delayed, and so will any reinvestments in the company. Start invoicing electronically and accept electronic payments to avoid this. 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 stabilising business cash flow. One of the most comfortable ways to make deposits is through a remote deposit service, which allows for cheque scanning from your desktop computer. Bigger businesses that get many cheque payments can automate the receivables process with Lockbox services for collecting payments.

3. Not organising business financing in advance

Not finding 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 machinery purchases, fuel working capital and put your expansion plans in motion is the most crucial part of cash management. Try hiring a financial advisor to help you choose between the available alternatives. The best and most convenient option is usually a business loan. Some NBFCs offer collateral-free loans with instant approvals and competitive interest rates for a comfortable financing experience. For working capital financing and equipment purchase, you can even opt for customized working capital loans and machinery loans.

4. Not reserving cash for emergencies and big expenses

Whether seasonal or not, all businesses 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 purchases of assets like machinery. If your business experiences a good month or quarter, make sure you save 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 too soon affects your business cash flow adversely. When paying bills, 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 spread 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 the business resources 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 realise whether a particular method of cash management is beneficial. Try keeping organised 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 can experience a cash crunch during a slow season while making capital expenditures or even during payroll time. To counter a cash shortage 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.