Where does My Money Go?

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Where does My Money Go?

You could consider yourself carelessly managing the cash flows in your business if you always lose track of your money or if you already asked yourself, “Where is my money?”

In a growing company, cash is the most essential part especially in the financial management of an entity. The lapse between the period you have to pay the business’ obligations and the time when you collect receivables from customers could be a problem, and effective cash flow management is the solution. Cash flow management simply means delaying your cash outflows for as long as you can and speeding up the cash inflows by encouraging your debtors to pay as sooner as they can.

Improving Receivables

There will never be problems in your cash flow if you receive payments the instant you have provided your goods or services to customers. However, it will not be possible since it is unavoidable to have uncollected revenues. But you may boost your cash flow by managing and controlling your receivables. Speeding up your cash inflows by quickly converting your receivables to cash is a fundamental notion. Below are the following techniques for achieving this:

  • Encourage your debtors to deposit their payments once their orders are made
  • Attract customers to pay their dues earlier by offering discounts
  • Avoid your obsolete inventory for anything that you can get your hands into
  • For new debtors in your business, ask for their credit checks as a requirement
  • Look into accounts receivables and segregate the good payer from the slow-paying ones. Instead of cutting down transactions to slow-paying debtors, have a Cash on Delivery (C.O.D.) policy implemented to them
  • Once a receivable is recorded, issue its invoice immediately and continuously follow up those who have not paid yet to ensure collection

Managing Payables

The pioneering companies of today can cover up their financial problems well; some do it far better than others. If your business is still growing, you have to be careful with your cash expenditures. Do not be fooled by the thought of having more sales means more profit. If you see more expenses than revenues in your business, you should think about your costs to be incurred and control them. The following tips will be your guide to a wiser usage of cash:

  • Use electronic fund transfers for paying your dues at the end of the scheduled term. With this, you still keep good terms with your suppliers and at the same time use your funds for more important transactions
  • Make use of the number of days in the term your supplier has given you to pay for your dues. Why pay in 14 days when you can pay in 30 days?
  • When choosing suppliers, do not go directly to whoever has the lowest price. Remember that you can easily extend the terms of your dues compared to lower prices, thus improving cash flow.
  • Consider carefully your suppliers’ offers of discounts just for the sake of getting paid early. These may result to large quantity loans to them.

Always have contact to your suppliers and update them with your financial position. Be loyal to them to gain their trust. By doing this, you won’t ever have a problem if you need your due terms be extended, should there be any circumstances.

Source: www.novabookkeeping.com.au

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