What is your company's cash flow? And how do you manage it best?

What is cash flow?

Cash flow refers to the money that flows in and out of a company during a certain period of time. This is usually calculated per month, per quarter or per year. 

Specifically, the cashflow is the net change in liquid assets of a company. This includes both the operational and investment activities of the company.

More than your profit your cashflow is the best indicator of your company's financial health. It indicates to what extent your company has the cash funds to finance operational activities, make investments and pay off debts.

How do you calculate your company's cash flow?

The easiest formula to calculate the cash flow is directly via the income and expenses:

Cash flow = income – expenses

If you don't know the income and expenses exactly you can also calculate the cash flow indirectly:

Cash flow = netto result + depreciation

In this case, the net result is lower because of the depreciation costs but because these are not expenses, you have to add them again.

Cash flow management: How do you approach this best?

These tips can help you optimise your cash flow:

·        Make forecasts: by assessing the expected income and expenses for the coming period (month, quarter,...) you get an overview of how many liquid assets you need and you notice if you'll have any deficits or surpluses.

·        Ensure timely payments: send your invoices in time and keep track of your customer's payments meticulously. Avoid leaving invoices outstanding for too long.

·        Optimize your stock: keep a close eye on your stock levels and make sure they are in line with your customer's demands. Too much supply means that your supply will be tied-up while short supply means that you're missing out on sales opportunities.

·        Control your costs: identify opportunities to reduce costs without putting the quality of your products or services in danger. A better operational margin also contributes to a better cashflow.

·        Invest wisely: be selective when making (large) investments and make sure that every investment positively contributes to the cash flow in long term. To maintain your liquidity, you can consider alternative financing methods such as leasing.

·        Consider short term financing options: do you have temporary cash flow deficits? A line of credit or factoring can offer a solution. 

·        Monitor and adjust: keep a close eye on your cash flow and adapt your forecasts and strategies if necessary. That way, you can quickly respond to changes in the market or the internal state of your company.

This is how Billit helps you with efficient cash flow management

Are you using Billit? Then you have a powerful tool at your finger tips which will help you in several ways to improve your company's cash flow.

·        Faster payments: Billit reduces the risk of errors when drafting invoices and payment data. This way, you avoid losing time because of payment disputes. In addition, QR codes on your invoices make it even easier for your customers to pay quickly. Finally, Billit also sends automatic payment reminders for outstanding invoices.

·        Better financial planning: Thanks to the bank connection you can easily keep track of your outstanding invoices and when they should be paid. This helps to plan your cash flow and better cope with unexpected expenses.

·        Efficient reporting: Billit always gives you an overview of your company's financial status. Thanks to this valuable info you can identify patterns and trends in payments and make better decisions about future expenses.