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C2FO Powers Early Payment Programs for the World’s Largest Companies.
Discover expert insights on working capital, cash flow optimization, supply chain management and more.
We believe all businesses can and should have equitable access to low-cost, convenient capital to grow and thrive.
As the saying goes, “Cash is king.” Cash flow management is crucial for businesses of any size or level of profitability. It ensures that business expenses are met and growth plans can be realized.
Cash flow management is the process of monitoring, optimizing and controlling how cash moves in and out of a business. Managing cash flow involves a daily analysis of available cash on hand and expenses. This allows the business to financially plan for day-to-day operations, customer demand and growth investments.
A positive cash flow means that more money is going into the business than leaving it, while a negative cash flow indicates that the business is spending more than it has coming in. A business may still experience a negative cash flow even if its sales are high. This is because lengthy payment terms can leave businesses waiting weeks or months for cash while expenses accumulate.
At their core, effective cash flow management strategies monitor cash flow metrics and forecast cash flow regularly. Measuring money inflows and outflows helps businesses plan for short-term expenses, while forecasting anticipates cash flow over days, weeks, months, quarters and even years. Some common metrics used to monitor and manage cash flow include:
Businesses that diligently monitor and forecast cash flow are equipped to predict both shortages and surpluses, and adapt accordingly. To mitigate deficits and optimize excess cash, businesses may incorporate the following into their cash flow management strategies:
Cash flow is often cited as the primary reason that businesses fail. Without sufficient cash, businesses may be unable to afford daily operations or make the investments needed for growth. Many businesses also require bank loans or other financing to operate and grow. Without effective cash flow management, businesses may lack the financial standing to qualify for funding.
Factors such as lengthy payment terms, customer nonpayment and seasonality can send even highly profitable businesses into a cash flow crisis. Cash flow management not only helps early-stage businesses get on their feet and maintain operations, it also enables profitable businesses to free up available working capital and ensure sustainable growth. It’s also valuable when an economic downturn may limit funding options or disrupt demand.
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