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Managing your Cash Flow

Cash is the life blood of any business.

Understanding the cash going in and out of your business gives you the power to grow strategically and avoid typical cash flow stumbling blocks.

While this is a complex topic, we have put together a few guidelines on getting to grips with understanding and managing your business' cash flow.

Cash flow signifies the financial health of a company by reflecting how much liquid assets are on hand, as well as what is going out and into the bank account over a period of time.

Making sure more money flows in, than out, is the basis for a financially sustainable business.

Note that cash flow and profit are not the same thing; you may have made R100k profit last month, but most of that might still be sitting in trade receivables, or you need to incur significant costs on a future project that may only generate positive cash flows in 3 months.

A positive cash flow doesn't necessarily equal profit either. You may be profitable and still have cash flow issues, and vice versa. That's why it is important to have a plan to manage cash flows, so that you know what your cash flow outlook is and what impact key decisions might have on that outlook.

The key components of cash flow are:

Accounts Receivable (Customers)

Money owed to you from customers for services or goods delivered. This is easy to lose control over if you don't have procedures in place to address.

Talking to customers about money can be tricky, but you deserve to get paid for what has been delivered or executed.

To make sure you get paid on time, be upfront and communicate early with customers around details of payment terms, expected payment dates and payment methods. Explaining your billing processes or accounting cycle can help communicate this.

Be clear about the expected costs, when and how invoices will be sent.

Dealing with outstanding invoices is a reality of business, so once the invoice has been delivered, have an automated process in place to send reminders for upcoming payment due dates, or reminders on past due invoices.

Once it gets to the point of having to send personal e-mails to follow up, dependent on how long overdue the invoices are, be polite but firm - the longer the debt is outstanding, you may need to become more assertive.

Ultimately, if there is still nothing forthcoming, it is time to give them a call. First double check that they've received your invoice before you start discussing the overdue payment.

You may need to consider legal action if there is still no payment being made.

Most clients have every intention of paying you, but you may occasionally come across a few that you know you're better off without.

Don't feel tempted to adjust your rates to fit unrealistic budgets; this may indicate a client that is not the right fit for you, they either don't have the budget or they don't value your services.

Making sure you get paid fairly and on time, is only half the battle...

Trade Payables (Suppliers)

Cash outflows will be salaries, operating expenses, paying debt like overdue suppliers or loans. Managing these outflows is critical for your business.

Provisional taxes, PAYE and VAT payments often throw a company's cash flow off if not planned for - make sure you know when larger payments are due and how often.

VAT payments, in most cases, are due every 2nd month, provisional taxes every 6 months and PAYE at the beginning of each month.

Make sure you put money aside to cover these payments when they become due.

It is always a good idea to have a separate bank account to put money aside for VAT payments, PAYE and Provisional Tax. In this manner, you clearly separate your cash flow between what's available for the business and what is due to SARS.

Fully understand the cost of your staff or contractors, thinking in net salary terms can lead to underestimating the true cost of salaries. You need to understand what's due to be paid in PAYE, as well as the additional cost of UIF & SDL, to get to the full Cost to Company.

For recurring bills, keep a summary of what these are and when they're due.

Plan ahead

Review the money coming in versus the money going out, compare the revenue versus expenses. This will help you stay on top of the bills and outstanding invoices, as well as help you set stronger, possibly more realistic financial goals in the future.

By reviewing your anticipated cash flow, and populating into a forecast over a few months - you will be able to identify potential cash flow gaps that need to be addressed.

Figure out which payments you can delay or certain expenses that can be cut back, set aside sufficient cash from peak months to cover slower months. Remember to include a buffer for any unplanned expenses that may crop up.

Having a clear understanding of your cash flow plan will help you iron out the bumps and hurdles before they arrive and see the impact any key decisions will have on your cash flow.

Inventory Management

Having resources tied up in idle or wasted inventory is a cash flow killer. You'll need to strike a balance between having the inventory available at the right time, and keeping your holding costs as low as possible.

Purchase only what you need, when you need it.

Having stale inventory holds up cash flow resources for the business which needs to be avoided.

Other areas to consider

Make sure it is as easy as realistically possible for customers to pay, clearly display payment methods and details on your invoices and statements.

Consider other payment options that may be easier for your customers like debit orders or credit card payments.

The key is to make sure your process is as simple and convenient for your customer as possible.


Your business may reach a point where there is a cash flow shortfall, or the company is gearing for growth.

There are a number of options available, depending on the company's financial history and outlook.

Short term funding like invoice financing or overdrafts are usually the first port of call - however more longer term funding arrangements will be necessary in certain cases such as fixed term loans or shareholder capital funding.

Be cautious with taking on debt, make sure you have considered other areas first like reducing expenses, delaying certain projects or payment.

If you do find yourself in a cash flow slump, review your pricing and invoicing processes, see if there is any room for improvement - you may be able to issue certain client invoices more frequently or earlier.

Review your operating expenses identifying the critical expenses versus the nice to haves.

Marketing should be one of the last expense to cut back on, continuous marketing efforts can stimulate sales and bring a company out of a cash flow slump.

Revisit your marketing strategy if there are not enough leads being generated.

Understanding your cash flow and planning ahead will be invaluable for your business ensuring you can strategically navigate the ups and downs that are part of business.

Cash Flow Mistakes to Avoid

Being too optimistic - make sure your goals and anticipated cash flow movements are realistic. Refine your forecast by adjusting it regularly and identifying items you may have missed.

Spending too quickly - spend company resources strategically, leave a buffer between major cash flows to give the company time to recover and assess any lasting impact on cash flows.

Not collecting outstanding invoices - a ballooning debtors balance can be disastrous and can signal the start of severe cash flow issues. Older invoices become increasingly difficult to collect.

Keep on top of the customers that owe you and the necessary steps like penalties or legal collections are being followed in more serious cases.

Not using a Cash Flow Forecast - by not implementing a cash flow plan, you will have no way of anticipating issues or what effect certain decisions might have on the bank balance 5 months down the line. This should be the most important document you keep track of in your business.

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Email us on if you would like to discuss any concerns about your cash flow.



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