Mastering Your Cash Cycle, the Basics

          Cash is an elusive small business tool.  One minute it's there, the next it's gone.  First you have none, then you have some, then someone else has yours.  The trick to keeping cash around is not what you think.  Okay, yes, putting it in savings and never, ever taking it out is a great idea, but not very practical.  Below are three (more practical) ways to keep cash working for you.

1.)  Collect like a bunny.  Collect your sales receivables at or before terms.  To do this, implement a collection process (habit) to train your customers to pay on time.  One or two months of reminders and your customers will pay on time.  A good collection process is to send a reminder (by email preferably) when the bill is 1 to 5 days past due.  A phone call at 10 to 15 days past due will motivate your customers to pay on time in the future.

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2.)  Pay like a turtle.  Pay your suppliers and vendors as far after terms as possible.  Unless you receive a discount for paying early or there's a penalty for paying late, never pay early or on time.  If possible, negotiate with your vendors to provide an early payment discount and terms that are longer than the ones you extend your customers.

3.)  Plan your spending, then stick to it.  Sit down and review your budget and plan your bill payments for a minimum of three months at a time.  Do this only once a month, if possible.   By looking at your cash position once a month, you are able to see the big picture, which helps you to make smart spending decisions.  Having a plan also reduces your stress, and limits the stressful process to monthly, rather than daily.

If you follow these three steps, your cash can work for you.  You can extend your cash cycle, giving your business the opportunity to invest the money.