Managing cash flow effectively

Section 4 : Controlling cash outflows

On the other hand, managing cash outflows means keeping a close eye on expenses and reducing unnecessary spending. Negotiating extended payment terms with suppliers or consolidating purchases for volume discounts can help stretch cash further. For instance, a manufacturing company might negotiate with its raw material supplier for a 60-day payment period instead of 30 days, giving it more time to collect from customers before settling its own obligations.

Additionally, reviewing recurring expenses and cutting out non-essential costs is required here. Regular audits of your business’s spending can reveal overlooked areas of cash waste, such as unused software subscriptions, excessive utility bills, unnecessary stock destruction due to poor storage practices, theft, or even failing to use the FIFO (First In, First Out) method leading to spoilage. These issues can cause you to reorder supplies more frequently than necessary. Addressing these inefficiencies will allow your business to free up cash that can be reinvested in growth or used to build cash reserves.