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4 Steps To Help You Manage Your Operating Cash Flow Statement


As your company grows, balanced operating cash flow becomes increasingly important. At the most basic level, cash flow refers to funds coming in as your customers pay for the goods and services you provide versus funds going out to pay business expenses. The goal is to create a situation where your accounts receivable are resolved quickly, leaving you plenty with of flexibility in handling accounts payable.

Step One: Understand Current and Future Cash Flow Needs

Working with experienced accounting and bookkeeping professionals will help you create a solid picture of your current situation, including a cash flow statement that is as accurate as possible. Some factors that play into the amount of cash you have on hand include the following:

  • Payment history of current customers
  • Seasonal factors that contribute to variations in your sales
  • Terms of payment for suppliers and vendors
  • Upcoming expenses, including one-off purchase,s such as acquisition of capital equipment

Don’t forget to include operating expenses, loan payments and any similar documents when creating a comprehensive view of cash flow. While it isn’t possible to know with 100 percent certainty how events will ultimately unfold, your estimates offer an excellent starting point in creating accurate projections.

Step Two: Use Best Practices to Improve the Speed of Customer Payments

The more quickly your customers pay you, the easier it is to manage your cash flow. Therefore, an important step in smoothing out cash flow is incorporating proven best practices to increase the speed with which your customers pay. These methods have been shown to improve account receivable turnaround:

  • Conduct a credit review before extending credit to new customers.
  • Provide invoices to clients immediately upon receipt whenever possible.
  • Offer discounts for prompt payment — a common example is 1% 10/net 30.
  • Create a cash-on-delivery (COD) policy for customers who are slow to pay their bills.

Step Three: Manage Your Process for Accounts Payable to Your Advantage

While you want your customers to pay as quickly as possible, it is in your best interests cash-flow-wise to delay paying your own bills until their due dates. Some common practices for managing your accounts payable include the following:

  • Carefully examine discounts offered by your suppliers for early payments — would it cost you more to borrow this money if necessary for cash flow, or does the discount substantially decrease your overall expense?
  • Create EFT-enabled accounts for bill payment, allowing you to transfer payments on their actual due date.
  • Maintain open lines of communication with your suppliers — personal relationships can go a long way if you run into a cash flow crisis.

Step Four: Prepare for a Cash Flow Crisis

The truth is that despite your efforts, you may run into an unexpected cash flow challenge, making it difficult to stay up to date on all of your bills. Creating a plan to handle such situations before a crisis occurs ensures you will make good decisions when you are in the middle of an emergency.

  • Establish a line of credit with your bank now, when you don’t need it, as you are much more likely to be approved.
  • If you have good relationships with your suppliers, discuss an extension with or without interest.
  • Accelerate your collections process for past-due customers and request early payment of invoices from customers that you have strong relationships with.
  • If someone must go unpaid, carefully examine the impact if the related services are lost. Do not skip payments on supplies and labor necessary to keep your doors open.
  • Consider leasing or selling an asset.

Whether you use in-house or outsourced bookkeeping services, leverage the experience and expertise of these professionals to plan your cash flow. Trusted accounting professionals can assist you in creating your cash flow statement, as well as planning ahead for your future cash flow needs.

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