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Business + Management: Marty Mcghie

Overseeing Your Daily Cash Flow

How to be more effective in the cash management process.




Managers in today’s business world have many areas of responsibility: sales and marketing, general business expenses, employees, equipment, and physical facilities, to name a few. But perhaps the most critical item to manage is your cash. Ironically, managers can sometimes ignore major steps in that process.

Simply put, there are two types of cash flow that affect your business: cash coming into the company and cash going out. Your business has more control over the cash going out than the cash coming in because, to some extent, you get to choose when you send out the checks. But controlling your accounts payable to the point where you don’t send any cash out to meet your financial obligations probably won’t work out that well. The problem is that many businesses spend much more time managing cash going out of the business and can, at times, ignore the focus on getting the cash into the business. So, what can you do to bring money in?

Communication Is Key

Your incoming cash will most often come from outstanding customer balances. Communication with your customers regarding their outstanding accounts receivable can be tricky. You have to be firm enough to make sure you’re going to get paid, yet careful not to offend your clients. (You’ll want to continue your business relationship with them, after all.) Here are a few ideas to consider in your collection efforts:

• Begin communicating early in the process. Avoid waiting to initiate correspondence until a balance is 60 to 90 days due. Consider grouping invoice amounts into separate categories such as invoices under $1000, between $1000 and $5000, between $5000 and $10,000, and greater than $10,000. Then, manage these groups accordingly. Perhaps invoices under $1000 don’t require a communication until they are 60 days out. On the other hand, an invoice greater than $10,000 could merit an email or a phone call right at 30 days to serve as a gentle reminder that this particular invoice is now due. It might also include a request for clarification if there are any questions regarding the invoice. You’ll want to establish protocols that fit your clients and their terms, but you need to manage your larger balances with higher priority.

• Stay on top of your invoicing. Don’t wait until the end of the month to begin processing invoices and sending them to your customers for work completed in prior weeks. Your customer’s payable dates will begin once they receive the invoice, so you’re only costing your business valuable days of cash collection when you don’t send them promptly.

• Cover your bases. You may consider setting up a backup system with your clients that enables them to receive both a hard copy and an electronic invoice. Ensuring your invoices are being sent to the proper person is also critical and can save precious time in getting paid.

Cash Is King

Controlling your company’s cash outflow is just as important as maintaining strength in your cash collection processes. You will struggle as a business long term unless both are managed well. A fundamental key to successful cash management is prioritizing your cash payments. Although it may be tempting, you cannot always cater to the person yelling at you the loudest.

Your first cash priority should always be your payroll and payroll taxes. Plan your cash balances with enough foresight to ensure that your payroll and payroll taxes are always covered by the necessary due dates. Most of your other cash commitments have some leeway in terms of the due dates, but payroll has no room for error. Other monthly, recurring expenses such as rents, utilities, and interest and lease payments also demand advance planning to avoid becoming too late on the payments.

Another high-priority cash requirement is the payments to your material suppliers and subcontractors. These vendors are obviously critical to your business and as such, you should always manage your relationships with them in an utmost professional manner. Paying your vendors close to their required terms is, of course, the easiest way to establish a great relationship with them. But at times, that isn’t possible. What happens when you find yourself in a situation where cash is tight and you need to stretch out the payments to your vendors? Be straightforward in your communication.

Like most companies, our business and cash flow struggled significantly during the recession a few years ago. We knew we would have to manage our cash more carefully than ever before. I placed calls to all of our key suppliers and told them that until things improved, we would likely be paying our accounts somewhere between 45 and 60 days out. I explained that if this wasn’t acceptable to them, we would understand completely, but we would probably shop our business with a supplier that would be willing to accept our terms. I also promised that when business rebounded again, we would get our payment terms back to where we had been historically. I was not trying to use unfair leverage here – I was being sincere and honest about our situation, and they understood. Every one of our suppliers agreed to our proposal, and true to our word, when things became better, we resumed our normal payment patterns. This idea certainly could have backfired on us, but because we had built trust with our suppliers through a consistent, professional approach, the plan worked.


Another helpful tip is to implement a dashboard tool of some sort that gives you daily visibility of your cash. For example, our accounting department emails a daily spreadsheet to the management team summarizing the current balances of our cash accounts and our lines of credit. Additionally, it summarizes both our aged accounts receivable and accounts payable to give us an idea of where we are with both of those crucial numbers. The tool provides detail of the major cash commitments that are due that week such as payroll, planned check runs, and other significant cash requirements. This daily dashboard view of our cash picture has become a staple item in our overall cash management strategy.

Hopefully, a few of these ideas will assist you in managing the cash coming into and out of your business. Paying closer attention to your daily cash decisions will undoubtedly help you grow a stronger business and also make you a better manager.

Read more from our August 2016 “” issue or get more from Marty McGhie.



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