To ensure that your business succeeds, it’s important to have effective cash flow management. From monitoring the inflow and outflow of cash, to analysing the data you collect, and ultimately optimising the way your capital is managed, there’s a lot that goes into cash flow management.

In this blog, we’ll help you develop an understanding and appreciation of cash flow management and introduce you to some strategies for avoiding poor management. Lastly, we’ll dive into the role both Invoice Finance and Trade Finance can play supporting small and medium sized enterprises with their cash flow needs.

Cash Flow Management – An Introduction

Cash flow management is the monitoring and controlling of the movement of capital into and out of your business. This can include making sure the timing of payments received are punctual and ensuring your company has enough liquidity to cover necessary operational expenses. 

Of course, effective cash flow management will also alert business owners and financial controllers to opportunities to improve cash flow efficiency or ensure that gaps in cash flow are managed in a way that operations can continue.

Why is cash flow management so important?

Having enough working capital is necessary for your business to be able to fund everyday operations, pay bills, invest in inventory and cover other expenses. 

The more inefficient the management of your cash flow, the less capable your business will be to succeed and the lesser your ability to invest in new growth opportunities. Even when it comes to making decisions that are in the best interest of your business, having an idea of the financial health of your business will empower you with the information you need to make the right choice. 

Signs of Inefficient Management

There are some warning signs that can indicate that your cash flow management is less than stellar. 

For a start, delays in receiving payments can be a big warning sign that your cash flow is going to be interrupted. Without enough capital to overcome these anticipated gaps, it might mean that there are gaps in your management strategies. 

On the other side of the ledger, failing to account for upcoming expenses, underestimating the amount of working capital needed, or missing on making payments can also indicate that your cash flow management is not up to scratch.

Lastly, there might even be factors unique to your business that require you to make a concerted effort in improving the efficiency of your cash flow management. Seasonal fluctuations based on your particular industry or customer habits can highlight the need for cash reserves. Similarly, volatile markets and downturns in the economy can affect you adversely on either the supply or the demand side. Effective cash flow management is all the more important in these situations. 

How To Avoid Poor Cash Flow Management

1. Invest in accurate forecasting

Fortunately, there is a range of affordable software available for accurate capital forecasting. These programs can help you anticipate peaks and toughs in available cash for your business and enable you to be more proactive in the way you manage shortfalls or surpluses. 

2. Seamless invoicing

An important part of any cash flow management is the implementation of an efficient invoicing process. Offering discounts for early payments, for example, can help to incentivise your customers to pay on time–if not prior to the end of the term period.

3. Track your inventory

Keeping a close eye on your inventory so that you know when you have excess stock and can save on cash expenditure or when you’re in need of investing in more inventory and need to access additional working capital can ensure you’re able to make decisions accordingly. 

4. Negotiate payment terms

The payment terms you have with your suppliers and customers must be fair but they must also work for your cash flow management needs. When the terms make your cash flow management difficult it could be a sign that you need to take a new look at your payment terms.

5. Consider Invoice Finance or Trade Finance

Invoice Finance and Trade Finance are both solutions for many small and medium businesses who are looking for a sustainable and affordable way of taking their business to the next level. 

With Invoice Finance, you can accelerate access to the money locked up in outstanding invoices from customers. 

With Trade Finance, you can ensure the ongoing facilitation of international trade without damaging disruptions to your cash flow. 

How ScotPac can help with your cash flow management

ScotPac is the largest specialist provider of working capital solutions in New Zealand. It’s not just our range of business finance facilities that makes us the right partner for SMEs looking to grow and succeed, it’s also our ability to tailor the solutions to our clients and their needs.

Using tech-enabled experiences for clients and drawing from our experience as industry advocates for small and medium businesses, we know both the challenges of cash flow management and how to assist business owners in overcoming the problem. 

Find out about Invoice Finance and Trade Finance today!

Invoice Finance allows you to access tomorrow’s payments today to manage cash flow, fund expansion and cover operating expenses. Apart from the lack of red tape, we’re also able to offer approved Invoice Finance to our clients in as little as 24 hours!

For businesses operating in the importing and exporting industry, Trade Finance can assist in maintaining stock levels, offering workable payment terms and developing mutually profitable business relationships.

So, whether either of these financial solutions suit you and your needs or you’d just like to speak to a member of our team and find out how we can help you optimise your cash flow management, contact your nearest ScotPac New Zealand office today.