Methods Of Improving Cash Flow In A Business

Methods of Improving Cash Flow in a Business

Cash flow; the inflow of currency to support, finance and provide budget to a business.

Large amounts of incoming cash = good cash flow!
Small amounts of incoming cash = bad cash flow!

There are numerous methods for a business/organisation to increase cash flow, some of these are listed below;

Raising extra capital by re-investing profits, issuing shares, or by the owner investing more funds. By doing this, the business will get an inflow of cash.
Taking out loans – from a bank or other financial institutions. A small organisation from friends, partners or associates. By doing this, the business will get an inflow of cash but repayments (including interest) will have to be made regularly.
Tight credit control – this means that the firm should ensure that it collects the money owed by debtors (people/organisations who owe the company money) as quickly as possible. This will improve the inflow of money but may cause bad feelings with customers who may leave and go to other suppliers/companies.
Sale and lease back – selling fixed assets to a leasing company to raise money and then leasing them back. This will provide an inflow of cash but there will be regular repayments to the leasing company.
Spreading purchase costs – hire purchase or leasing. This means that the outflow of cash will not be in one month but will be spread over a number of months instead.
Tight stock control – ensuring that the companies capital is not tied up in too much stock. This will help to keep the outflow of cash at a steady level. A good example of this is the ‘Just In Time’ * stock control method.
Checking a customer’s credit worthiness before goods are sent out – this will ensure that customers are reliable and will also pay their bills. This, in turn, means that the inflow of cash is kept up at a steady and efully increasing rate.

*
JIT (Just In Time) is the stock control method which allows a business to order raw materials ‘just in time’ to produce the goods or carry out the services required of them. The danger here is that if the supplier is unreliable – the business may be unable to meet it’s order requirements!

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2. Improve Cash Flow by Managing Stock Levels
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4. A Business Consultant Can Help Evaluate and Control Cash Flow
5. The Importance of Cash Flow to Businesses