HomeLearning CenterWhat Is Cash Flow Monitoring and How Automation Can Help

What Is Cash Flow Monitoring and How Automation Can Help

In today’s dynamic economic climate, all businesses, especially mid-sized businesses must reduce the risk of cash flow problems. 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.

What is Cash Flow Monitoring?

Cash flow 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 complete picture of revenue and costs, so you can make sure you have enough money to pay your bills while also making a profit.

The cash flow monitoring process allows 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.

Avoiding cash flow problems is not difficult. In fact, it is essential to your success and survival.

Why Poor Cash Flow Monitoring is Bad for Mid-Sized Businesses?

Cash flow challenges are a concern that businesses of all sizes aim to steer clear of. However, the impact of negative cash flow can be particularly severe for mid-sized businesses, given their growth phase. Poor cash flow not only hampers day-to-day operations but also poses a significant obstacle to the sustained growth these businesses strive for. 

While a larger company may have cash on hand to cover late payments, mid-sized businesses are more dependent on their monthly income forecasts to meet their financial obligations.

Long-term negative cash flow is a problem for ambitious businesses that want to grow. It can impede their ability to invest in crucial areas, meet financial obligations, and take advantage of emerging opportunities, thereby hindering the overall trajectory of the business. Addressing cash flow issues becomes even more critical for mid-sized companies aiming to navigate the complexities of expansion and establish a solid foundation for long-term success.

Regular credit checks on your suppliers and clients are a great way to keep a positive cash flow. Credit bureaus 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.

cash flow management reports

5 Deadly Cash Flow Monitoring Mistakes to Avoid

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 a 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 a firmer messaging tone compared to diligent payers.

With Peakflo’s accounts receivable 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.

Email reminder Peakflo

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 paying in bulk. The finance team can also pay domestic and international vendors with a multi-currency e-wallet for more convenience.

The bills and payment dashboard in Peakflo
With Peakflo, automatically pay bills in bulk or individually. No more late payments!

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 customer’s and your own business’s credit scores is 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’s needs and sizes. Peakflo, for instance, specializes in medium enterprises. 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.

Cash flow analytics

Casually Extending Credit

Avoid the mistake of offering credit without considering the creditworthiness of your clients in your eagerness to secure new accounts and close deals quickly. Taking risks with clients who have a poor credit history or exceed their credit limits can lead to cash flow problems down the line.

To mitigate this risk, establish customized credit policies for each client to foster better relationships and reduce credit-related issues. When bringing on a new client, reach out to their references to inquire about their payment history and conduct a comprehensive credit check. This approach enables you to assess potential risks more accurately and make well-informed credit decisions.

With Peakflo’s AI-powered reports get up-to-date credit reports and gain visibility into real-time financial health.

Manually Performing Reconciliation

Manual data entry and matching can be tedious and prone to errors. Failing to provide your Accounts Receivable (AR) team with the necessary tech tools for automating cash reconciliation and remittance matching is a significant oversight.

With Peakflo’s Automated Reconciliation, your finance team won’t need to dedicate weeks to month-end closing. The system takes care of reconciliations, automatically syncing data with your accounting software. This not only saves time but also prevents costly errors in data entry and matching, potentially saving your business millions.

account reconciliation ar

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.