The economy of Singapore has strengthened since the lows seen in 2008-2009. The desperate search for investors and venture capitalists, which took Singapore-based entrepreneurs to the shores of India and China, has also been easing. However, businesses still fail in the nation. The most common reason for failure is poor money management, rather than a lack of skill or unfeasible ideas for business. Effective cash flow management is, therefore, the key to success in a competitive market and a growing economy. Here’s a look at some important aspects of managing cash for businesses.
How to Manage Cash Effectively
Here are some useful ways in which to ensure that the cash management of your business ensures optimal liquidity:
- Anticipate and measure: How often have we heard that being prepared for the worst is the only way to succeed? This holds true for your business finances as well. It is important to set up targets for your cash flow by making educated projections of future needs. The only way you can make such informed estimations is by keeping accurate records. You can choose to have monthly and yearly targets that are reviewed on a regular basis, say weekly, to ensure that you are on track. Use the cash flow and income statements of the past months to estimate the available cash and make projects for the next 3-6 months. These will also help you identify if there is any shortfall and come up with a strategy to make up for it well in time.
- Keep track of receivables: Life would be so much easier if you were paid as soon as you made a sale or delivered a service. In reality, the best way to understand how and when customers pay is to keep an accounts receivable report that it reviewed regularly. This report will also help you understand the paying habits of your regular customers. When you identify those that tend to delay payments, you could follow up with them and encourage timely payments. Make sure you send out all invoices promptly and offer a range of payment options that makes it easier for the customer. You could even offer incentives for rapid payments, such as giving discounts. . Your business will benefit when the cycle of materials to products, inventories to receivables and receivables to cash is short.
- Managing expenses: A growing business will see top-line sales growth. However, expanding sales could mask underlying cash flow problems. So, stay alert for any signs that expenses are growing faster than your sales. One way to manage costs is to make use of your vendor’s credit terms. For instance, if you have a time frame of 15 days to make a payment, use that time rather than paying up immediately and then realizing that there is a liquidity crunch. Of course, if your vendor is offering discounts on early payments, you might want to use that instead. Build relationships of trust with creditors. This is the only way you can get some leeway when you expect to be late on payments. Communicate in time if a delay is likely.
You could also use technology to your advantage for cash management. However, understanding and using accounting software might not be the easiest thing to do. This is when cash management services come to the rescue for businesses wanting to keep track of their inflow and outflow. Find out more about these services and stay on top of your business’ financial future.