SMI Business Ideas
A Quick Guide to Cash Flow Management
By Mr. Samuel Lai, Chartered Accountant (M), CPA Australia, B Commerce, CFP
“Lily, please tell them that I am not transferred to fixed deposits or short Stretch your credit terms
around this week” Mr. Vincent told deposits that could earn higher with supplier
his secretary. He has been avoiding interest. You need not pay every bill as soon
the landlord and suppliers phone as it arrives, try to obtain a longer
calls because the shop rental and Bill On Time and Manage credit terms from suppliers that
payment for goods are overdue. Accounts Receivable would allow you to keep the cash
Vincent’s business is doing well, but Invoice should be issued immedi- now and settle the bill later.
the money does not come in as ately once the goods have been
quickly as the money that is going delivered or a project is completed. Increase Working Capital
out of the business. You should also set up an accounts Make sure you have sufficient
receivable process that allows you working capital to finance your
Many business owners struggle to to record sales, payments, and increasing business volume. You
maintain adequate cash flow for generate monthly statements and could achieve this by obtaining
their business. And inadequate cash ageing reports. These reports will overdraft and trade facilities from
flow to meet a company’s financial assist you in making informed deci- the bank, or from shareholders by
obligations may cause damage to sion pertaining to credit control and issuing shares to them.
the company’s credit standing, take necessary actions immediately
higher interest expenses, diverting on overdue accounts.
management focus from making Use Proper Bank Facilities
business deals to negotiating settle- It is important to choose proper
ment terms, stalling business
Inventory Control bank financing by considering the
You should keep adequate stocks to financing requirements and nature
growth and may eventually cause
meet the projected sales but do not of the project. For example taking a
the fall of the company. Cash flow
keep too much stock on hand, as it long term loan when financing the
crunch need not be a virtual; you
could tie up your cash. Stock level purchase of a factory; overdraft to
can improve your company’s cash
should be controlled base cyclical cover short term cash deficit or use
flow by making some adjustments
demand, anticipated sales and stock it as a buffer; hire purchase or lease
in your business practice today.
delivery time and cost. You can also facilities for purchasing new
adopt Just-In-Time system to lower machineries; and trade facility such
Cash Flow Projection your inventory level. as Bankers Acceptance to finance
Cash inflow is the movement of the purchase of trading goods.
money into your business such as Plan Expansion
cash sales, collection from debtors, Beside the business expansion plan, The above suggestions are only
deposits from customers, bank loan a proper plan on cash flow is also basics to cash flow management.
and director’s advance. And cash important for major expansion proj- We could explore further on this
outflow is the movement of money ect such as acquisition of property issue by looking into areas such as
out of your business, is generally the and expansion of production line. financing options, managing bank
results of paying expenses, repay- Make sure there are sufficient cash facilities, investing surplus cash
ment of amount due to supplier and to cover all the anticipated flow and debt management in
settlement of bank loans. By payments for the expansion. future. Please contact us if you
projecting and monitoring the cash require more information or assis-
inflow and outflow frequently, you tance on cash flow management.
can determine and manage the
Have a buffer (reserve) to
amount of cash that will be avail- cover cash flow crunch
able during a designated period of Set a side a buffer (cash reserve)
time. Any projected cash deficit which is liquid to cover any unex-
could be dealt with immediately by pected cash outflow such as recov-
arranging advances, overdraft facil- ery of a production line due to fire
ity, and reschedule payments. And and temporary slum in the industry.
any unused cash surplus could be
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