Regardless of current trends in business, one core tenet remains the same: healthy cash flow is critical to the success of any company. In simple terms, this means speeding up the collection of receivables and slowing down payables. It is important to note that in order to maintain a high credit score and good business standing, the latter must be done without jeopardizing relationships with suppliers.

While striking this delicate balance may sound tricky, it is entirely possible to achieve with careful planning and a solid approach to the process.

Forecast the Financial Future 

Before you do anything else, make sure to create a formal cash flow projection. In general, the best format for most businesses is 12 months out and broken down into weekly segments. Why is this step important for improving your company’s cash flow? It helps you prepare for unfavorable movements in cash flow so that they do not knock finances off track.

For example, if your business is seasonal or cyclical in nature, anticipating surges and declines in revenue gives you the foresight to ease expenditures during slow times and set aside revenue from your most profitable times.

Establish an Effective Collection System

Since bolstering the collection of receivables is a key part of the healthy cash flow equation, it is crucial that you consistently enforce payment discipline. It is the best way to shorten your receivables period.

Do not wait until 90 days have passed to seek out payment from your payers. Hit them up at the 31-day and 61-day marks. This will let payers know you mean business and help you identify which accounts need a firm nudge going forward.

Get Targeted with Accounts Payable

While it may sound counterintuitive, making payments early is not necessarily beneficial to cash flow. It is actually better to pay on the exact due date, as this practice will keep cash on the balance sheet longer. That said, make sure you do not fall behind on any payments.

Do Not Hold Excess Inventory 

Use a just-in-time (JIT) inventory management system to reduce inventory holding costs, which can have a detrimental effect on cash flow. JIT involves procuring inventory right before you need it rather than exceeding inventory levels in case you need it.

It is not just the aforementioned departments that should take measures to properly manage cash flow. Make it a priority company-wide by offering incentives for those who contribute to the cause and penalties for those who neglect it.

By implementing these strategies, you can improve cash flow and the chances for long term business success.