FREE online courses on How to Manage Cash Flow - Chapter 4 - Summary

 

Managing cash flow is a major balancing act between making sure all obligations are paid on time, doing everything you can to collect cash as quickly as possible, and not holding excessive cash balances. An understanding of cash flow cycles is an important first step in managing cash flows. Once you understand the cycles, you want to lengthen the disbursement cycle and shorten the receipt cycle. Controlling float times is a common way of adjusting cash flow cycle times.

 

In order to understand the magnitude and timing of cash flows, you need to plot cash flows. This leads to the use of cash flow forecasts. Cash flow forecasts help optimize the amount of cash that should be held. Cash flow forecasts also help identify when short-term financing will be required.

 

Finally, be aware that cash flows are influenced by many factors, ranging from payroll to inventories. A static workforce and runaway inventories can be detrimental to cash flows. You need to be aware of the warning signs of cash flow distress, such as late vendor payments and delayed purchases.