Accounting & Bookkeeping

Five Tips for Effective Cash Flow Planning

Written by Analytix Editorial Team | August 29, 2016

Small business owners sometimes mistake profitability for cash flow. Whereas a company can be profitable on paper, it can simultaneously be “cash poor” lacking the resources to pay bills, including payroll. This is the type of situation that small businesses and startups seek to avoid, as cash flow can literally make or break a business.

To mitigate this, business owners should have a clear understanding of their company’s sources and uses of cash, as well as the timing on those outlays and inflow. Following are several tips businesses can take to proactively manage cash flow.

1. Manage receivables efficiently

Although account receivables represent money owed to a company, those funds are useful after they appear in your bank account. Account receivables cannot be used to pay bills, therefore business owners must have knowledge of their daily cash balances in order to have a realistic snapshot of the money actually in possession. Managing receivables efficiently allows business owners to collect the associated cash quickly. There are several steps that business owners can take to ensure this:

    • Ensure prompt invoicing on all your deliverables
    • Ensure timely and full collections
    • Incent prompt payments or pre-payments with discounts or special offers

2. Make bill payments when they are due

New businesses should be wary of paying bills too far in advance unless there is a significant discount or offer. Paying bills in advance ties up otherwise “free” cash, so paying the bills “on time” allows for more flexibility in cash flow planning.

3. Ensure better payment terms

Work with vendors to negotiate terms that benefit your operations. Maintaining good vendor relationships is critical, as ideally vendors would let you invoice clients, collect funds owed, and then pay the vendor’s receivable. Dedicate a significant amount of time researching and negotiating the best terms possible.

4. A steady line of credit

A steady line of credit can be extremely useful to young businesses. Credit lines can compensate for unforeseen cash flow problems. Lending institutes such as banks may also issue lines of credit. Do your homework to ensure a good interest rate.

5. Maintain an alternative source of income

Even if it means cultivating an alternate source of revenue, it is always better to back up a line of credit with an alternate income source. Consider complementary services you can offer clients during non-peak periods, to compensate for periods when cash flow may drop off.

Analytix Solutions has a team of professionals experienced in cash flow planning. For more information on how we can help your company with its cash flow planning needs, please visit us at or email us at

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