Cash flow is critical to the survival of a business and historically has been a leading factor behind small businesses closing their doors. About 60% of business owners have faced cash flow problems, and about 25% of small businesses list improving cash flow as a top priority, according to a 2019 study, sponsored by QuickBooks.
Cash flow is the movement of money coming into a business from customers, clients, etc. compared to the movement of money out to pay business expenses. When you have more money coming in than going out, you have positive cash flow. When you have negative cash flow, you aren't bringing in enough cash to cover expenses and you risk falling behind and stacking up late fees--you may even struggle to make payroll. Now, let's look at some of the key numbers in the QuickBooks study on cash flow.
- About 1/3 of SMBs have defaulted on a loan as a result of cash flow issues
- About 1/3 Have been unable pay vendors
- About 1/3 Have been unable to make payroll
- Most small businesses only have enough cash on hand to support 27 days of typical outflows
- 33% of SMBs have more than $20,000 in outstanding receivables
Even Profitable Businesses Can Have Cash Flow Problems
Even if your business is profitable on paper you can still face serious problems around cash flow that can cripple your business. When this happens it is usually due to having too many unpaid invoices and may be a sign of inefficiency in the accounts receivable process.
Tracking cash flow is critical in measuring your accounts receivable performance. In a nutshell, you want to compare your total unpaid expenses and purchases to your total sales due. If you see signs of trouble at the end of the month, you need to bring in more cash. That means it's time to run an aging receivables report and collect overdue payments. But to reduce overdue payments in the first place and get paid faster, your best option is to get a robust accounts receivable automation solution.
How Accounts Receivable Automation Helps
AR Automation software will literally pay for itself, especially if it integrates directly into your accounting system. Here are some possible benefits that will help you streamline your AR process:
- Automatic fulfillment
- Automatic reminder messages to customers
- Customized customer payment portal
- Auto-Charge
Learn more: 7 receivables automation functions to get paid faster and reduce collections costs
