What Is Cash Flow Monitoring and How Automation Can Help

All businesses must reduce the risk of cash flow problems, especially with the threats of coming recession. Even the most trustworthy customers might not be able to pay their bills on time. This guide will show you how cash flow monitoring can help your business grow and meet its payments, even in uncertain times.

Cash flow management or monitoring is the process of tracking money entering your business and comparing it to outgoings like bills, salaries, and property costs. It gives you a full picture of revenue and costs, so you can make sure you have enough money to pay your bills while also making a profit.

Cash flow monitoring process will allow you to predict company profits better and identify investment opportunities. No matter how much work is in your pipeline, customers who have not paid their invoices can cause a financial crisis that cannot be fixed by simply increasing revenue. It doesn’t have to be difficult to avoid cash flow problems, but it is essential to your success and survival.

Why Poor Cash Flow Monitoring is Bad for Small and Medium Businesses

Cash flow issues are something that all business owners want to avoid. Negative cash flow is often more severe for small and medium enterprises because of their small size and limited financial resources.

While a larger company may have cash on hand to cover late payments, smaller businesses are more dependent on their monthly income forecasts to meet their financial obligations. In serious cases, business owners may have to resort to personal funds to keep their businesses afloat.

Long-term negative cash flow is a problem for ambitious businesses that want to grow. Business owners won’t be able to invest their time and energy in thriving. Instead, they will have to struggle to keep the business afloat month after month. It’s not surprising that research found that 71% of small business owners worry about their cash flow.

Regular credit checks on your suppliers and clients are a great way to keep positive cash flow. There are various tools that will show you the business credit score of your client and highlight any potential problems early. You can also check the credit history of existing customers to determine if they are in financial trouble, which could put your business at risk.

When It’s Time to Increase Business Profit with Cash Flow Monitoring

It’s easy for people to overlook early signs of cash flow problems if they don’t conduct a regular cash flow monitoring process.

There are many signs that your company may soon face financial problems. However, they won’t become apparent until you have a budget in place, established cash flow targets, and maintained a good reporting system. So, what are the warning signs you should look out for?

Late or Missed Payments

You might be experiencing cash flow problems if you start to notice unpaid invoices  pile up. It can be difficult to pay your business bills if cash is not available. Late payments or missed payments can be caused by lack of cash or poor admin. This could impact your ability to get financing, find suppliers, and create partnerships.

Having an effective collection strategy will be the key to receiving payments faster. Make sure to strategize a payment follow-up plan based on customers’ or vendors’ payment patterns. Let’s say, late payers will require tighter a payment reminder loop and firmer messaging tone compared to diligent payers. 

With Peakflo’s accounts payable software, you can get paid 2x faster. Easily set up smart workflows with automated, multi-channel reminders based on an escalation matrix.  Peakflo also comes with AI predictions so you can create custom tasks based on customers’ payment behavior. 

There Are No Discounts for Accounts

Many vendors offer early payment discounts, which can help protect their cash flow and give you a financial edge. You could be putting yourself in a difficult position if you pay all your accounts late. This could cause cash flow problems.

It’s important to pay your bills in advance so you can take advantage of the credits the vendor assigns to you. Using Peakflo, you can cut payment time by half by scheduling payments according to the due date or pay in bulk. The finance team can also pay domestic and international vendors with a multi-currency e-Wallet for more convenience.

Negative Cash Flow

Sudden financial shocks such as a client leaving or machinery failing can quickly make you lose your business. It’s difficult to raise your revenue fast enough to cover your expenses once this happens. 

You should take every precaution possible to ensure you are ready for anything. Monitoring customers’ and your own business’ credit scores are equally important. If your finances are strong, you should be able to get cash flow loans and financing for new equipment.

Most businesses try as best as they can to be careful with their cash flows. However, a cash flow report is oftentimes inaccurate due to incorrect payable and receivable transaction records. To make issues worse, the finance team usually relies on a spreadsheet cash flow template for reporting which is not only hard to track, but also hard to manage. 

There are a lot of cash flow monitoring tools that can adapt to any industry needs and sizes. Peakflo, for instance, specializes on small to medium enterprises (SMEs). The cash flow analytics from Peakflo can help companies visualize cash flow health and even predict future cash inflows. Finance leaders can instantly make actionable strategies to improve cash flow projections in the coming years.

It’s Not Easy to Find the Funds to Pay Expenses

You will have a positive cash flow, which will make managing your expenses easy. It will be easy to manage your costs by knowing exactly what is coming in and when. You can also set up payment terms for outgoings that won’t be missed. If your cash flow is a struggle, it’s time for you to improve it. 

Don’t know where to start? Perhaps you could give Peakflo’s accounts receivable automation a try. Click on the button below and claim your free trial for 30 days. 

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