Cash flow management tips every CFO should know

Cash flow Image credit Freeimages/Zsuzsa N.K.

‘Cash is king’ is a term often heard in business conversation and often not given the respect it deserves.  Cash flow is the bloodline of a business and therefore effective management of cash is vital to ensure the success of a business. It is the role of the CFO to ensure the business has the necessary cash not only to sustain the day to day running of the business but also to finance managed growth/ expansion.

Here are a few tips that will help CFOs manage their cash flow and understand the cash flows of their business better:

  • Prepare a cash flow forecast. Review this regularly on a daily/ weekly basis and ensure the cash is being managed properly. Don’t forget to factor in regular payments such as payroll taxes, salaries and VAT payments at the correct times. This focuses the business to the critical times of the month when cash (or lack of it!) might be an issue.
  • Agree clear credit terms with your customers. Agree credit terms at the start and encourage customers to speak to you for payment plans if they are having trouble settling your invoices. Agreeing terms enables you to forecast the cash receipts accurately.
  • Invoice on time. The sooner you invoice, the earlier you get paid. Small businesses often make payments once or twice a month. If your invoice ‘misses’ the payment run, you will have to wait for the next payment. This delays the cash inflow into your business. Email invoices rather than send by post. This means the customer gets the invoice faster.
  • Make payments easier for your customers. Give bank account details or other online methods of payments they can use.
  • Offer clients the ability to pay by direct debit or standing orders. This gives a degree of certainty on cash flows.
  • Extend payment terms with suppliers where possible. If you are getting paid in 30 days by customers, negotiate, say 45 days for supplier payment. This means you pay suppliers only after you have got paid by customers.
  • Use technology to manage cash flow. Use cloud accounting solutions to view your finances on the move. There are some very good cash flow forecasting solutions that sync in with your cloud accounting software. This means that the data flows automatically reducing the scope for errors.
  • Do not focus on profit – focus on cash. Targets are often set on profits of a business. However, a very profitable business could go bust simply because it did not manage its cash flow effectively. Focus on cash and the profits will come.
  • Encourage customers to pay faster. It is not unusual for accounts payable departments to settle invoices on which they will get early settlement discounts first. This is often at the expense of overdue invoices but with no incentive to settle up!
  • Keep the bank informed. If there is a need to get an overdraft or additional facilities, they will be more amenable.

Just to re-iterate about cash flow

For small businesses, cash is very important especially in the early stages and growth stages. Cash, or rather lack of it, is the most common reason why businesses fail in the early stages of the lifecycle of a business. Small businesses often do not have the same access to funding that their larger counterparts have. Therefore cash flow management and how to improve it should be on every CFO’s agenda.


Alliots logo - (c) 2017 AlliotsDipali Buch is an accountant and corporate financier with over 15 years experience. One of her specialisms in is the Technology sector. She is a partner at Alliotts Chartered Accountants.

Alliotts are experts in cloud accounting software and are Xero Platinum Partners. If you are concerned about making tax digital or would like to consider cloud accounting solutions please contact us.

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