The changing dynamism of the markets makes it necessary to make the payment terms of accounts receivable or invoices to customers and also of accounts payable or invoices to suppliers necessary, this is where cash flow plays an important role for your company .
In an ideal world, if both sales and purchases were made in cash, the cash flow would be equal to these cash inflows and outflows, that is, it would be equal to the profit and loss statement.
However, we know that in order to sell to many customers and be competitive, we have to offer payment terms between 30 and 90 days at least, that is, what we sell today we collect in the best case the following month.
Likewise, due to the fact that while these clients pay us we have purchases to make, raw materials to acquire and services to contract, we are obliged to ask our suppliers for payment terms similar to those granted to clients or even longer.
Now, what role does cash flow play?
Planning these inflows and outflows of money vs. the time in which they are actually going to enter, allows us to have a clear picture of the company’s cash and be able to make decisions in the face of scenarios where we have not received the expected payments, but we must comply. with vital obligations such as payroll or severance pay.
Many of these decisions can be foreseen if good planning is done or if you have a financial ally that helps mitigate the impact of payment times and ease cash flow.
In other words, the cash flow is the way in which the company can see into the future and determine whether or not it will be able to meet future obligations by its own means, integrating the expected collections, payments to be made and, in general, all the entries and money outflows at a given time.
And you entrepreneur, do you already have your cash flow ready?
Remember to update it at least monthly to carry out effective financial planning.