Cash Flow Cycle

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What is the “Cash Flow Cycle”?

“All truth is found in the cash account.” — Charlie Bahr, management consultant

Key Points:

• The Cash Flow Cycle describes how the cash Flows in and out of business.
• Receivables are promises of payment you’ve received from others. They feel like sales, but with a catch: the promise has to be fulfilled for the Receivable to translate into cash.
• Debt is a promise you make to pay someone at a later date. They are helpful because the later you pay, the more cash you have at your disposal at the present. The catch is that it usually costs additional money in form of interests.
• To bring in more cash it’s better to speed up collections and reduce the extension of credits. And always remember that you don’t have to extend credits if it doesn’t make sense for your business.
• Maximizing your cash tackles the issue directly: bring in more revenue and cut costs.

Questions for Consideration:

• Is it possible to strengthen your cash flow by collecting receivables earlier, paying creditors later, or reducing your overhead?
• Can you increase your available purchasing power by opening a line of credit or other expandable option for use if unanticipated events occur?

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