How bookkeeping can help with cash flow

Good bookkeeping can help with cash flow. It keeps you on top of what bills need to be paid and when, what customers owe money, and how much of your on-hand cash is actually available to spend. (I know; it’s a nuisance when mundane and boring tasks are good for you; think diet and exercise.)

Recently, I took on a client whose organization had a decent stream of income, but was draining the bank account monthly because things hadn’t been planned well, and this lack of planning was catching up with them in the form of too high receivables, bills overdue, and late fees assessed.

Working with the owner, we did three things to alleviate the day to day angst about the bank balance, and then put cash flow on a more even keel. Each was greatly helped by utilizing the accrual method in their accounting software.

First of all, cash was needed to make things more stable. To do this, we made sure all money owed was recorded in the software if it wasn’t already. This let us see which customers were most in arrears. Then we did what seems a no-brainer, but is too often overlooked: we asked for payment. Customers know they owe you, but whether the bill was lost or they are procrastinating, they’ve not yet paid. Send another bill or, better yet, pick up the phone and call. Most customers can and will pay; you just need to remind them to do it. 

Note: if this has been a chronic problem, your customers may assume you’re okay with late payers. Using good customer service practices, let them know you are tightening up your collections.

Next, we entered all outstanding bills and new ones as received into the accounting software. This allowed us to see what bills were due immediately and which payment due dates were out seven days or more. When cash is an issue, paying a bill today that isn’t due for 20-30 days doesn’t make sense. 

We also looked at bills that had been put on credit card payment. Some online services will only accept such payment, but changing to emails/paper bills where possible allowed better visibility of what is due when. It also eliminated the big monthly credit card bill. And there were weeks of the month that had the most bills due, so we worked with vendors to change the due dates of bills. 

Finally, I implemented a cash worksheet that at any time would show what cash could actually be spent. It starts with that day’s bank balance, takes into account any outstanding transactions, and then compares that result to the accounting system’s balance. Then by listing bills and payrolls due in the next 20-30 days, we could gauge if an extra effort in collections was needed. This mini, any-day-of-the-month reconciliation keeps you on top of your cash position, and away from the month end cash crunch. 

We made a lot of progress in six months, and the best indicator was that the owner said sleep was coming much easier each night!

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