As today,many start-ups and even big companies are facing challenges due to uneven and inconsistent economical crises.Many CFOs and CEOs are now emphasizing on Cash Flow Management to help improve their company's financial situation.
From always,cash is known as the biggest asset of a company for its leveraging and exponential growth, so is the main focus of company.But what basically Cash Flow Management is all about?Cash Flow Management can be well understood by the cash flow cycle.
But what exactly does cash flow cycle means?
In a simple way its the movement of cash.Lets say for a company,
1.A heavy amount of cash is being paid for the purchase of raw materials,system &
process,infrastructure management .
2.Amount paid to suppliers and vendors.
3.Employees salaries and benefits.
4.All the products are then stored in a warehouse/inventory untill there is demand from
5.Cash received through market after selling the product or when invoiced to customer.
Depending upon many factors and on the nature of business the lag between the time you have to pay your suppliers,vendors and employee and the time you collect amount from your customer is Cash Flow Cycle.
This cash flow "lag" is one of the most common reasons for business failure.Even big companies with strong sales and profit can simply run out of money in the middle of cash flow cycle if the lag time is more.Cash Flow Management should be checked and then projected for the next year or for next upcoming quarters.An accurate cash flow projection can alert you to trouble before it strikes.
To manage proper cash flow companies seeks loan from Bank to cover their cash flow gaps.But in today's credit environment it is difficult to obtain such a loan.Company can avoid from cash crisis only and only by shortening there cash flow cycle,and yes,although by this one can play from safer side and avoid risk.
For Shortening Cash Flow Cycle,
1.ACCELERATE COLLECTION OF YOUR RECEIVABLES:
Company should try there level best to boost there amount recovery from customer as soon as possible after selling there product.This shorten cash flow cycle and also avoid risk of delayed payments.Also to accelerate collection,discounts should be paid for early payments.
2.STRETCH OUT DISBURSEMENT OF YOUR PAYABLE:
By stretching out disbursement of your payables ,Cash flow cycle can be reduced.
Note: For start-ups it is very essential to understand this subject as it is the base and
foundation which one must understand while working over an idea till its gets
executed in real world.