Five Steps to Use Accounting Software to Increase Your Cash Flow

 Five Steps to Use Accounting Software to Increase Your Cash Flow

Money is the lifeblood of a company, yet many owners are unaware of how much space they have for error. They can find it difficult to make payroll or get financing on pricey conditions if their cash flow unexpectedly drops. This is a prevalent issue, even for lucrative, rapidly expanding businesses.

By closely monitoring your cash flow, you can identify when your bank account is about to run out of money and take preventative measures. Even a simple spreadsheet or free or inexpensive accounting software may help you keep an eye on your cash flow.

According to BDC business consultant Alka Sood, "accounting software is usually seen only for tracking your financial history and paying taxes." "But tracking your cash flow will help you manage your business more effectively, which is the primary reason you should use it."

Sood offers this five-step method for utilizing accounting software to improve cash flow.

1. Make an estimate of the cash flow

financial flow prediction is the first step in effective financial management. Create a list of all the fixed and variable expenses and income you anticipate having in the next year using your accounting software or spreadsheet. (Not every accounting program has excellent facilities for projecting cash flow. An Excel spreadsheet made using Microsoft is a fantastic choice. Excel's templates provide a number of free cash flow management worksheets.)

Next, review your prediction and make a note of any decreases in incoming cash flow. By being aware of them ahead of time, you may take steps to improve your cash reserves, ask suppliers for relief, reschedule critical bills, reduce spending, and seek extra financing.

According to Sood, "cash flow projection gives you peace of mind." "You is able to rest better at night when you don't have to be concerned about surprises and how you'll pay the bills."

Companies usually monitor their cash flow once a month. Cash inflows and outflows should be documented in the month that they happen, not in the month that the sale is made or the bill is received.

Take Control of Your Cash Flow, a free guide from BDC, will help you understand cash flow estimates better.

2. Accelerate the cash flow

Accelerating the inflow of funds into your company helps mitigate credit line use and mitigate cash flow reductions. Many accounting software versions allow you to utilize the following features.

Immediately from your accounting software, send invoices via email.

It's time to move to email if you're still using traditional mail. This minimizes your sending expenses and is much quicker than the postal service. Encourage clients to pay their bills online to expedite the process.

Utilize a mobile accounting application to instantly handle invoices.

Not only does money get into your business more quickly, but there's also less chance of billing issues.

Regularly check your accounts receivable.

You may use this to keep track of delinquent accounts and choose whether to take legal action against tardy payers. To ensure you have precise estimates, you may figure out each customer's days receivable outstanding (the amount of time it takes them to pay) and include it into your cash flow calculations. To determine if you need to alter your billing terms to promote timely payment, you can also take a look at the total days outstanding for your business. For instance, you could impose late penalties or interest on accounts that are past due.

maximize stock levels

Utilize the inventory management features in your accounting software to find methods to minimize inventory costs, optimize inventory levels, and cut down on cash held in stock. Additionally, tools can guarantee that you never run out of stock.

3. Reduce the amount of money leaving the country

By lowering or limiting cash outflow, accounting software may help you retain more of your company's funds. To prevent late penalties and interest, for instance, you may keep track of your invoices. Alternatively, you might choose not to pay your payments in full before they are due. If suppliers provide you a 30-day payment term without providing incentives for prompt payment, take advantage of this extra cash.

4. Automate work

Examine the features that enable you to automate repetitive chores. For instance, you may be able to bill your frequent clients automatically.

In order to save late fees and interest, you may also set up automated bill-payment reminders. Additionally, you have the option to set up alerts that will notify you before your next investment runs out of funds.

5. Pay attention to the figures

Accounting software provides indicators that help you manage cash flow more effectively. Regularly check your projection against actual cash inflows and outflows, and make any required adjustments.

Additionally, you may configure your program or spreadsheet to show important information like gross profit, days inventory outstanding, days receivable/payable outstanding, cash on hand, and cash conversion cycle.