Cash flow is important to any business to ensure the company continues to trade. The higher the cash flow and the lower the DSO (Days Sale Outstanding) is the better the financial position the company is in. If a company gets into cash flow difficulties this can affect several areas of the business:
- Payroll – If the company does not have enough disposable cash flow to pay their employees this could result in staff leaving the company and finding alternative employment. Once a company starts losing their best employees this will be hard to recover.
- DPO – Days payable outstanding, if the company’s cash flow is lower, this means the company will have difficulties paying off their loans or repayment obligations which can later result in legal action which can add further complications.- Long-term vs. short-term – the lower the company’s cash flow is the harder it is for the company to look at long-term plans and investments as there is fewer disposable cash within the business to work with. This will result in the company having to look short-term and ultimately not making the best decisions for example, buying substandard goods which can jeopardize the company.
To avoid having a reduced cash flow, it is beneficial for companies to invest in systems like Gaviti which will automate the accounts receivable process for a company which will send out automated reminders to clients and chase clients on overdue payments.
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Cash flow is important to any business to ensure the company continues to trade. The higher the cash flow and the lower the DSO (Days Sale Outstanding) is the better the financial position the company is in. If a company gets into cash flow difficulties this can affect several areas of the business:
- Payroll – If the company does not have enough disposable cash flow to pay their employees this could result in staff leaving the company and finding alternative employment. Once a company starts losing their best employees this will be hard to recover.
- DPO – Days payable outstanding, if the company’s cash flow is lower, this means the company will have difficulties paying off their loans or repayment obligations which can later result in legal action which can add further complications.- Long-term vs. short-term – the lower the company’s cash flow is the harder it is for the company to look at long-term plans and investments as there is fewer disposable cash within the business to work with. This will result in the company having to look short-term and ultimately not making the best decisions for example, buying substandard goods which can jeopardize the company.
To avoid having a reduced cash flow, it is beneficial for companies to invest in systems like Gaviti which will automate the accounts receivable process for a company which will send out automated reminders to clients and chase clients on overdue payments.