Why Cash Flow Is So Important?
It sounds fairly logical that cash flow is important to keeping your business running. Cash comes in, cash goes out and your business world keeps turning. Right? Absolutely.
It is something, however, that we can often take for granted. Cash flow is the thing that just happens in the process of operation. Funds are handed over to suppliers who provide the materials needed to create and produce the products to sell.
Customers who purchase part with their funds, providing back to the pool in which funds are delivered to suppliers, and so the cycle continues.
So anticipated is this process that a minor disruption to flow such as a large customer not paying on time, often doesn’t faze anyone. That is, until you begin to understand the implications of late or non-payment. Without the incoming, the outgoings can’t happen. Without the outgoings, your opportunities for incoming funds can be severely restricted.
As we’ve seen recently, one single non-payment can cause the collapse of a well established company that has been in existence for over quarter of a century and provides jobs to hundreds of people.
Having policies and conditions on payments for both the incoming and the outgoing (not just for your customers, but also for yourself) can significantly reduce any potential cash flow problems. Set up some rules and regulations around how you will manage non- or late payments from customers to assist all those involved.
Understanding cash flow as something vital to the running of your business, and not just assuming it will happen, is also essential and will help you to stick to your own policies you create.