Most small business owners would probably agree that “cash flow management” is not the most exciting aspect of their business. However, cash flow management can determine whether a business will flourish, struggle, or die a slow death. For business owners at any stage, there is nothing cliché about cash flow being the lifeblood of the business; yet, very few business owners give it the proper attention required to ensure a steady, healthy flow of cash.

Small businesses stand a better chance of surviving critical business junctures when they know what cash they should have coming in and going out. This requires having a reliable forecast for future monthly expenditures while keeping track of cash on hand.

Itemizing all sources of income, including cash sales to customers, credit sales with payment terms, cash from credit lines, and cash infusions from owners or investors, is the first step in developing an accurate forecast.

The next step is to itemize all known recurring expenditures, such as payroll, taxes, rent, operating expenses, and payments to suppliers. Both sides of the ledger need to include specific timetables in order to precisely gauge the timing and amount of cash inflows and outflows. From this analysis, it can be determined how much cash-on-hand is required at each interval and how much excess cash flow can be applied to an interest-bearing working capital account. Equally important, it can position the business to withstand unforeseen circumstances that could cause a cash crunch.

With the right cash management tools in place, small businesses can react to changing circumstances. Fortunately, with the technology available today through banks that specialize in business banking solutions, business owners can access state-of-the-art cash management solutions.

Keys to Effective Cash Flow Management

The basic mechanics of cash flow management apply to small businesses and large companies alike; the only difference is in the tools they require. Growing businesses need to get cash in as effectively and efficiently as possible, while gaining more control over the cash they pay out so it can be better utilized within the business. This requires a deliberate and disciplined approach to cash flow management. Fortunately, there are now some simple, affordable solutions that can help small businesses gain the upper hand on their cash flow.


Businesses must be able to convert receivables into cash as quickly as possible. When receivables get out of control, it could be the beginning of a cash flow death spiral. The key is to systematize and automate wherever possible.

1. Don’t allow your customers to set the payment terms

If you let your customers dictate the payment terms, it could be just a matter of time before their cash flow problems become your problems. Set strict payment terms, even if it means losing a prospective customer, especially where credit is being extended. Include in your payment terms specific timeframes for paying the balance due, late payment penalties, and conditions that may trigger legal actions. Good customers will respect your terms.

2. Automate your billing process

If it takes more than one person or more than one day to get an invoice in the hands of a customer, you are wasting valuable time and resources. Considering that you could wait up to 60 days for a payment (with net 30-day payment terms), you can’t afford to manually bundle your invoices and send them once a week or once a month. Using an automated billing process can not only reduce staff costs, it can accelerate the conversion of receivables into cash.

3. Automate your collections

For small businesses, collections can overwhelm their resources and put a serious crimp in their cash flow. Automate your receivables system so it can provide your billing person with a daily report sorted by age and amount owed. This will not only enable you to foresee potential cash flow problems, it will help your billing person focus on outstanding accounts in order of priority. Ask your bank about an automated collections system.

4. Accept electronic payments

With the availability of affordable electronic payment processes through a bank, such as credit cards and Electronic Funds Transfer, there is no reason why a small business can’t accelerate their cash receipts while minimizing float. Digital payment options can not only streamline the receivables process, they can also provide greater protection against fraud.

5. Put your cash to work

In the digital age, cash should never have to sit idle. In the not-so-old days, businesses would have to bundle their excess cash and run to the bank to make a deposit. Today, your cash can move automatically from your business checking account to an interest–bearing account each night. These automated “sweep” systems determine how much surplus cash can be swept, leaving what’s needed for the next day’s payments. Putting your excess cash to work could add hundreds of dollars to your cash flow each month.


Of course, many cash flow problems can be solved by better managing expenses. However, the focus for many small businesses tends to be on short–term expense reduction – cutting an expense here or there, or getting a one-time price break on materials, etc. Effective expense management requires a long–term plan with ongoing reviews of expenses. The focus should be on creating sustainable savings in supplier and operating costs. For instance, it may be more cost effective to negotiate for better payment terms over price.

On the expense side of the ledger, controlling how, when, and to whom payments are made can have as big an impact on your cash flow as getting cash in. The longer you can keep cash working for you in the business, the more control you will have over your total cash flow situation.

1. Control your disbursements

It is well worth the effort to analyze the payment terms of all your vendors and suppliers to determine a precise payment schedule so you can keep cash on hand and earning interest for an extra few days, or even weeks. Many businesses lock themselves into an internal payment schedule based on a certain day of the week or month for paying bills. It’s not uncommon for some businesses to pay all their bills at once, which can potentially create short-term cash crunches. The objective should be to keep cash in your business as long as possible.

2. Digitize your payables

Writing, issuing, tracking and reconciling paper checks can tax the resources of a small business. Small businesses can now have access to electronic payment solutions, such as Automated Clearing House (ACH), Electronic Funds Transfer, and online banking platforms that enable them to streamline the payables process, reducing the time, cost and errors associated with manual payments. The ability to monitor transactions in real time enhances your ability to manage your cash position at all times.

3. Outsource your payroll

For many small businesses, their biggest outlay is payroll. It can also be one of the more resource-intensive functions a business must perform on schedule. An increasing number of businesses are turning towards automatic payroll services to help reduce costs while increasing employee satisfaction. Many small businesses have adopted payroll cards as a way to provide employees with a more secure, convenient and low-cost way to manage their finances. Payroll is downloaded directly to Visa® cards which can be used anywhere, and they provide the cardholder with liability protection.


The small business/banking relationship has changed dramatically in just the last few years. New technologies have ushered in the digital age, bringing affordable cash management and centralized processing to small businesses. The days of filling out deposit slips and rushing to the bank before closing are over. Remote deposit services enable businesses to make deposits from any location with an Internet connection, including mobile devices and smart phones. And, having the ability to manage all cash management functions online through a centralized portal provides the small business owner with a level of control that was unheard a few years ago.

Consider applying for a business line of credit1 at your bank, which can provide the ready cash you need to get you through cash flow challenges. Revolving lines of credit offer the flexibility to draw funds for business purchases as needed.

With the array of robust cash management solutions available, small business owners never have to be in the dark about their cash situation.


 1. Subject to credit approval. Terms and conditions apply. See a banker for details.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC