Using Inventory Management to Improve Your Small Business’ Cash Flow

By Margot McClelland, Special to US Daily Review.

It’s no secret that when owning a business you have got to manage your cash flow. Sure, it’s common to emphasize selling and revenues, but you have also got to watch your costs. Regardless of your customer’s inconsistent payments and in spite of money you have tied up in “work in progress,” you still need to pay your company’s bills. Understanding your cash conversion cycle, knowing your accounts receivable and accounts payable, as well as using inventory management software will help you better understand your company’s cash flow.

Cash conversion cycle

Your company’s cash flow can easily be managed. By calculating your cash conversion cycle (how many days it takes to convert resources spent on inventory and sale efforts into cash), you can speed up this cycle and see cash flow sooner. The cycle is simple: your company gets inventory on credit, which then becomes your customer’s accounts payable. Once clients buy your company’s products on credit, this inventory becomes their accounts receivable. The cycle ends as soon as your company collects cash from customers. Inventory, property, and equipment are then totally paid for.

Accounts receivable

Another easy way to manage cash flow is to watch your company’s accounts receivable policies. But, you’ve got to be strict! You want to ensure that your customers are paying you and paying you on time. Send out merchandise only after customers have paid for it, and don’t hesitate to run credit checks for heavy spenders. For long-term customers, you may want to create an accounts receivable aging report to better monitor multiple payment patterns.

Accounts payable

Equally important as accounts receivable is your company’s accounts payable. You don’t want to pay others faster than you yourself are getting paid. Thus, your goal should always be to get the most influx of cash as quickly as possible. Explore flexible payment plans with vendors and only pay them when payments are due. Also, make sure to pay your company’s bills on time as late payments and bad credit can negatively impact your growth. Consider an electronic funds transfer system with your bank, so payments can automatically be sent on their appropriate due date.

Inventory management software

As a business owner, you know your company’s money is tied up in raw materials, work in progress, and final goods inventory. Keeping track of all of this can be difficult, but it doesn’t have to be. Inventory management software can help you keep track all of this, and as various software options are available online, you can monitor inventory easily. Not only will you better be able to track what your company is selling, you’ll clearly be able to note all profits you’re making from sales. Perhaps more importantly, you’ll know how much of what product is selling, and can adjust your numbers accordingly.

Author’s Bio: Margot McClelland is a guest post writer on the subjects of cash flow management and small business software options like inventory management software and order management software.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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