Secrets of Cash Flow Management

Secrets of Cash Flow Management

You may have heard the saying, “cash is king”. Cash is essential for any organization to survive, and good cash management is essential if the organization is to prosper and grow.

It doesn’t matter what organization you’re in or how profitable it is, if you run out of cash, and are unable to borrow money, your organization will cease to operate. Net income is not the same as cash. You can generate a positive net income, but at the same time be short of cash. If you can’t pay your suppliers or employees then you will not remain in organization for very long.

To remain viable, an organization must maintain a positive cash flow, where the amount of money flowing into the bank account equals or exceeds the amount of money going out. Because positive cash flow is so important, many organizations will forecast their future cash requirements, enabling them to proactively take steps to avoid running out of cash.

Forecasting Cash Flow

Cash flow forecasting involves estimating cash inflows and outflows, and allows you to spot “negative cash flows” where the amount of money coming out of your bank account exceeds the amount going in. Such cash flow deficits can be addressed by increasing cash inflows, decreasing cash outflows, or obtaining short term financing such as a bank loan or a line of credit to fill in the gap.

Cash Flow Forecasting Models

A well-designed spreadsheet-based cash flow forecasting model greatly simplifies the process of forecasting an organization’s cash flows. The model should permit you to enter an organization’s planned cash receipts and expenditures for each future period, and automatically determine the bank balance at the end of each period. Any required draw downs or repayments of the line of credit should be automatically calculated. The forecasting model may also include a chart depicting cash inflows, outflows, line of credit available and line of credit utilized.

Arranging Financing to Cover Cash Flow Shortfalls

Despite best efforts to increase and accelerate cash receipts, and to reduce and defer expenditures, you may still have a requirement for short-term financing to cover off gaps in your cash flow.

Being proactive is important. Short-term financing should be negotiated before you require actually require the money. It is to your advantage to negotiate terms for a line of credit, or to arrange access to other short-term financing facilities, well before you need to draw on them.

It is helpful to build and maintain a good relationship with your banker. You should keep him informed of significant changes in your organization that may affect cash flow, and of forecasted requirements for bank financing to fund the growth of your organization.

Alternative financing vehicles, such as the recent Canada Emergency Business Account, are also available to help small organizations that are faced with a short term cash flow shortfall.Use a cash flow forecasting model to help you predict when and how much financing may be required. By demonstrating to the bank your ability to forecast accurately, you will establish greater credibility. The bank should perceive you as a lower risk borrower, and you should be able to negotiate more favorable lending terms.

Strategies to Improve Cash Flow

Methods of improving cash flow can be grouped into two broad categories:

  1. Strategies to increase or accelerate cash receipts
  2. Strategies to reduce or defer expenditures

We have listed a number of these strategies in the table below.

Increasing / Accelerating Cash Receipts Reducing / Deferring Expenditures
Increase prices of products and services Negotiate discounts on purchases
Generate A/R aging reports & review regularly Negotiate increase in credit from suppliers
Request deposits or multi-stage payments Don’t pay invoices until due date
Email invoices rather than mailing Pay by credit card where vendor allows
Change payment terms to “Payable upon Receipt” Defer capital expenditures
Invest idle funds Reduce inventory levels
Allow customers to deposit payment directly into your bank account, by providing EFT banking information on your invoice Outsource payroll to third party provider (often beneficial even for a single employee organization)
Establish a systematic collections process, including regular follow-up of delinquent accounts Consolidate bank accounts, use fewer banks, negotiate lower banking fees
Sell or donate surplus assets Defer discretionary spending until sufficient cash is available
Invoice promptly upon delivery of product or service, or if possible, in advance Seek cost reductions upon renewal of service contracts with suppliers
Suspend credit on delinquent accounts (require payment up front until account is current) Review telecommunications bills to insure you are paying only for the services you require

If you would like assistance in improving your cash flow management, please contact me at 613-727-1230 ext 212 or email

Richard MacNeill, FCPA, FCMA, CMC, Dipl. T. is a partner at OTUS Group, a team of advisors to business, government and not-for-profit organizations.


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Richard MacNeill
President, OTUS Group | OTUS Group
Holding Certified Management Accountant (FCMA), Chartered Professional Accountant (FCPA) and Certified Management Consultant (CMC) designations, Richard is also a graduate of the British Columbia Institute of Technology, holding a diploma in Computer Programming and Systems Technology.
Outside of work, Richard enjoys spending time with his wife and three children, and training for obstacle races.

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