Business Finance: Insuring Cash Flow

Cash flow is one of the important elements of business finance, and refers to the movement of cash in and out of a business. It's also one of the ways to measure the overall health of a business. Business success is often a product of sufficient cash flow, and here are some of the common methods companies employ to insure a constant supply of cash.

Invoice Factoring

Also termed “leading”, some companies sell their receivables to a third party, called a “factor.” The factor pays cash up front for credit-worthy accounts receivable and can provide working capital when conventional funding is not available.

Inventory Management

How you handle your stock inventory can significantly impact your cash flow. You don't want to tie up all your money in inventory, so you'll need to keep a keen eye on the flow of items and prioritise your needs. Pay particular attention to inexpensive items with high turnover ratios, as these often have greater impact on the business than high-priced items.

Sales

Finance and accounting aren't solely responsible for cash flow. Operational personnel and the sales force must also understand this concept and the impact of what they do on the flow of cash.

Other areas of the business that can affect cash flow include salaries, expenses (such as maintenance fees, equipment leases, rental fees, etc.), research and development, and taxes. Keeping a close watch on these areas will help keep the cash flowing, and the business running.