900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
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Business Tip |
Don't let your creditors run your business.
When you have cash in the bank, paying your bills
can feel good. It might even create a sense of pride. It is nice to know that your business is working well. Some
small businesses, however, have problems making the money stretch each month. It may seem as though their creditors
are running their businesses for them. How can this be prevented?
The trick is to plan ahead. You need to establish a good system of controls. You need to determine the flow of
goods and services in and out of your business. You need to determine the timing of cash receipts and expenditures.
You should prioritize your bills in terms of interest charges or late payment fees, effect on inventory and supplies,
and strength of vendor relationships. You need to analyze due dates and discounts. And most important, keep in
touch with your creditors if you cannot pay on time. Vendor relationships become very important when you are looking
for the best price, the best delivery schedule, and notification of special deals.
Here is a typical cash flow problem. Ralph has a business that sells equipment to government agencies. He failed
to analyze the timing of his cash receipts and disbursements. The equipment he delivers this month to the government
will not be paid for until three months from now. He, on the other hand, must pay his vendors within 30 days.
Ralph may have prevented this cash crunch by preparing a cash flow analysis. He should have negotiated earlier
payment from the government agencies and or partial payment at the time of delivery. He should also have enlisted
the help of the vendor by asking for a payment date on the invoices to match his receipts from the government.
This example may be a little extreme, but it emphasizes the need to know ahead of time what is happening to your
company's cash flow. Even profitable companies can have cash flow problems without the proper controls on receivables
and payables.
If you would like assistance with your cash flow analysis and controls, please call us. We are here to help your
business be more profitable.
