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Cash Flow Management

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  • July 2008
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CASH FLOW CYCLE
Cash flow is referred to be the single most serious concern of the SME (small and medium-sized enterprise). It is simply the inflow and outflow movement of money in the business. The effect of cash flow is real and needs to be protected. There are four principles in cash management:

-The first is cash needs to be tracked and captured. It needs to be in a controlled process. -Second, cash management is an important part of the business cycle. -Third, you need information on outstanding receipts, investment options, longer term projection, etc. -And the fourth is... be masterful.

THE CASH FLOW CYCLE
It can be said that cash flow is a cycle. Company or SME use cash to acquire resources such as land, buildings, equipment, etc. and to buy goods and services which are then sold to customers. Then you collect and deposit the funds and then cycles back again. It is important to see the timing of the inflow and outflow of cash to have success of the business. What are inflows?

This is the movement of money into the business, such as receipt of monies from the sale of goods and services, proceeds from the bank, interest received on investments, etc.

What are outflows?
These refer to the movement of cash out of the company/business, such as purchasing finished goods for re-sale, purchasing fixed assets, etc.

CASHFLOW MANAGEMENT is vital to the health of the business. Ideally, more money should return to the business against the outflow. Without careful monitoring of the cash flow, the business may not have the profit realization as they scheduled it. Appropriate actions must be done to prevent such incidents or it may run the business into bankruptcy. The cash inflow and outflow rarely take place together. The cash inflow would seem to lag or behind schedule form the outflow, leaving the business short on cash. The cash “short” is also called cash-flow gap. To positively affect the cash flow, you must manage or completely eliminate the...

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