There are several things a person or company can do to improve the efficiency of receivables and payables. Implementing a strict cash management system is one of them. Cash management is the process of managing cash inflows and outflows. This process is important for individuals and businesses because cash is always the primary asset used to invest and to pay any liabilities. Managing cash flows effectively leads to higher working capital and better operating cash flow. The ultimate goal of cash management is to maximise liquidity and minimise debt.
Why is Cash Management Important to You and Your Business?
There are many reasons why cash management is important for you and your business. A significant one is that it improves accounts receivables by increasing income and by encouraging customers to pay early or on time. Cash is the lifeblood of any business and the additional cash flow allows for investment and enrichment elsewhere, such as investing in the stock market or purchasing property.
Other areas that can be improved through better cash management are accounts payable, stock and shrinkage control, and debtors and creditors. Allowing individuals or companies to purchase on credit when they are not creditworthy or failing to follow up on payments outstanding, will negatively affect cash flow. Likewise, when it comes to accounts payable by you, it is a better approach to manage these payments and pay later rather than earlier, without negatively affecting your creditworthiness.
Finding the Right Equilibrium
Finding the delicate balance between receivables and payments can be a challenge for some companies. Equally, the line between having too much cash available and not having enough, is a fine one.
A company holding on to too much cash could be losing out on investment opportunities that may generate additional income, whilst a company that does not have enough cash might need to take a loan against fixed investments and pay it back at high interest rates.
Why Should You Improve Your Cash Management?
Even if your company is operating in the green and is turning a profit by making an income that exceeds expenses, it still needs to manage its cash flow responsibly to be successful: cash flow is directly tied to daily operations and other business activities. If the business is profitable, its extra cash can be used for investment and growth, such as upgrading operating assets or marketing the brand.
Additionally, excess cash can assist with financial activities such as raising debt financing for new business endeavours or equity funding. Once funding has been raised, additional cash flow could be used to pay off this funding.
Efficient Is as Efficient Does
And that is why you should consider partnering with our team of qualified professionals at Efficient Wealth. Our certified financial advisors provide you with a tailored solution that will cater to your individual and company’s liquidity and cash management needs. Our dedicated team is equipped to advise you on the term structure and investment alternatives most suitable to you.
Partner with us today.