A company’s cash flow is crucial because it depicts the actual inflow and outflow of cash and is thereby a great indicator of liquidity. Accounting-wise, it’s one that needs to be kept an eye on because sales does not exactly equate to profits or let alone currency. Remember sales on credit? Good thing we have Single Invoice Finance in the form of factoring and discounting.
The financing options have proven to be very useful to help business entities with their liquidity issues as well as to help them raise capital without having to go for a debt. As much as these methods are often used for emergency purposes, they are also a good solution to help ease the pain as resulted by these cash flow mistakes.
- Lack of an Emergency Fund – Lastly, a cushion or emergency fund should always be present. This emergency cash allocation that is to be used in dire situations such as when liquid funds are not available due to certain factors and scenarios becomes useful as the need arises. This safety net can be a company’s saving grace.
- Lenient Credit Terms – It is important that you take a good look at the terms and conditions set out to customers who purchase on credit. They need to be strict but reasonable, clear and specific. Moreover, it is a must to assess their credit score before extending the transaction.
- Long Outstanding Receivables – Accounts receivables are not bad per se but if they become long outstanding then they cease to be quite the promising asset they were supposed to be. Long outstanding accounts mean that they have gone past their maturity. They remained uncollected and therefore useless and illiquid. Overtime they can even be written off as bad debts and therefore losses.
- Mismanaged Accounting – To better gauge and assess one’s cash flows, proper accounting of all transactions are a requisite. There has to be a system set in place to raise red flags when disadvantageous circumstances arise. Accuracy and timeliness are also crucial here. If records are erroneous or are not recorded and made available in time then all efforts will remain in vain.
- Overestimated Sales Volume – There is nothing wrong about optimism in business but everything has to be set on a realistic scale. Sales won’t triple in a month by some miracle. If one overestimates and makes use of unrealistic basis then there’s the risk of spending more thinking that demand is on a high.
Single Invoice Finance can do so much as to ease a liquidity and cash flow issue but it’s still best to avoid the aforementioned mistakes at all costs.