Cash Management for Small Business - Popular Community Bank | Blog

08.17.2017 /

Cash Management For Small Business

For small businesses cash is a very valuable commodity. Making sure your business has an effective cash management program can help your company make the most of what is on hand. Below are 8 essential tips for your small business:

1) Cash Flow Forecasting

It is easy to get caught up in your daily tasks and overlook balancing the books every month. However, having a precise picture of income and expenditures makes identifying when an invoice hasn’t been paid, a bill is outstanding or when overall business volume is decreasing much easier. Cash flow forecasting can also help reduce the impact of unexpected downtimes or disasters, since you will know how much cash you may expect next month and can also budget for necessary expenditures, such as flood repairs or buying a new walk-in refrigerator.

2) Keeping Capital Expenses Low & Investing Wisely

Capital expenditures such as vehicles, office space, or network infrastructure may not be optional for your business, especially if your company is experiencing rapid growth. Effective cash management, however, depends on investing wisely in capital purchases when they are necessary and cutting back wherever possible. This means that opting for an extra 400 square feet of office space might make sense for your company over the long term, yet spending an extra $5,000 more a month on marketing may not. Return on investment should always outpace expenses over time. It’s also possible to defray capital expenses and help your company “find” extra income monthly that can be used to grow the business by repairing current equipment or buying used items, exhausting existing inventory before purchasing new inventory, and hiring part-time employees instead of full-time employees.

3) Payment Terms

Vendors have a strong incentive to help finance their valued dependable customers’ purchases. Getting a payment pushed out an extra two weeks could be the difference between having insufficient funds in your checking account and being able to make a necessary investment that strengthens your business.

If your payment terms are 15 days, consider if it makes sense for your company to ask for 30, and it they are 30 days, to ask for 45. If you have a good relationship with your vendor, they could be open to a more favorable arrangement that gives you more time to make payments. Always be sure to ask if there are any interest or discounts that are added with each payment option.

Be persistent. Just because you have already asked once, or even a couple of times, and they’ve said ‘no’, doesn’t mean the answer will always be ‘no’. You have little to lose by asking again, either inquiring the same vendor or speaking with a competitor. Remember, the more dependable they view you, the more willing they will be to extend their payment terms.

4) Reviewing Payment Structure Saves Dollars

Are you still paying your employees with a physical check? Consider switching to direct deposit, since some major banks tack on a surcharge of a dollar or more per check. Paying employees monthly or bi-monthly rather than every two weeks also can reduce your company’s costs since fewer transactions will be required. Popular Community Bank Payroll Solutions can also be a handy service to use to help keep the costs of payroll minimal, while keeping your business organized. Popular Community Bank offers its Payroll Solutions clients convenience by providing payroll journals with current payroll information, notices of the amounts needed for payroll and taxes, new hire paperwork to the appropriate government agencies, and several other benefits you can read about here.

5) Use Your Bank to Back You Up

It’s always a good idea for companies to establish ongoing relationships with their preferred business bank—this starts with using bank services for payroll and may extend to include savings or investment accounts. These relationships create a framework of trust, which can be helpful when needing to secure a loan or new credit line approval.

6) A Dollar Saved Is A Dollar Earned

Never leave extra income lying around. Savings accounts, certificates of deposit (CDs) and money market accounts typically pay better interest than standard business checking accounts. Keep only the necessary funds in accessible checking accounts. Investing the bulk of company assets in higher-yield funds will earn you much more than letting such assets sit in a checking account.

At Popular Community Bank, we offer many services made to support the efforts of business owners.  If you want to get extra cash working for you, our Premier Business Money Market service or a Popular Business Certificate of Deposit might be the right direction to look in. Our Premier Business Money Market offers moderate balance requirements and free online and telephone banking. With our Business Certificates of Deposit you’ll benefit from competitive rates and automatic renewal, not to mention interest can be compounded daily and credited to your account annually, semi-annually, quarterly, monthly, or at maturity! This service is a fantastically simple way to lock in high rates of return on idle cash. Learn more about both of these services here or stop into a local branch.

7) Scheduling Your Supplier Payments

While it can be difficult to keep track of when a customer will pay you, it is not difficult to keep track of when you will pay your suppliers. Suppliers always want to be paid as early as possible, and paying early can certainly have its benefits, but paying your suppliers as early as possible can make long-term cash management very confusing. Setting up a regular payment schedule that satisfies supplier needs while still regulating cash outflows is the best way to keep payments organized and keep your suppliers happy.

8) Increase Your Timely Cash Flow

Having your customers pay on time is, of course, very important. There are steps business owners can take to make sure customers make timely payments.

Incentivizing your customers or vendors to pay on time or before their invoice is due with discounts can drastically increase your timely cash flow. Mobile payment options, allowing consumers to pay securely by credit card and receive an email receipt can also dramatically increase how quickly your customers pay.

If it is typical for your company to have a long list of customers who miss their payment due date monthly, investing in a system that automatically generates and sends out past-due notices for customers can decrease the number of past due accounts that need to be dealt with. If a customer continuously tries to dodge making a payment, you can use collection services, but this tactic should only be used in situations where it is necessary. Another technique is to require deposits on large or unusual orders so that if the order is canceled or never picked up, at least some of your costs can be recouped. Some businesses request a deposit upfront from customers who typically pay late.

Cash management is extremely important to the long-term health of any small business. It is imperative to minimize outflows, streamline inflows and know exactly where every dollar is going. By understanding all the operations of the business, a small business owner is much more equipped to handle their capital responsibly to better grow their business.

For more information about our Cash Management Services, please click here.

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