In a survey conducted by Kabbage, 500 entrepreneurs admitted that cash flow is the biggest concern when running a business. The respondents boast an average of 10.5 years of successfully running small businesses. Yet, 63% of them said that they still (regularly) feel stress and anxiety due to cash flow issues.

Rightfully so because according to a U.S. bank study, 82% of small businesses fail because of cash flow problems. In short, cash flow is a huge worry for anyone who owns or runs a business.

What is cash flow?

Cash flow refers to the inflow and outflow of money to and from a business. The term "money" infers cash and cash equivalents like securities and money market holdings. Cash received by the company constitutes inflows. On the other hand, all the money that is spent by the business represents outflows.

A positive cash flow indicates that inflows are greater than outflows. This, in turn, means that the business's liquid assets are increasing. Thus, it has enough cash to sustain its daily operations, settle debts, pay taxes, pay employees, purchase inventory etc. If the cash flow is positive, it also means that the company has enough money to reinvest in growth.

On the other hand, a negative cash flow indicates that the business is spending more than it makes. This points to a mismatch between income and expenditure. More worryingly, a persistently negative cash flow may render your business insolvent. If the business can't generate enough income to pay off debts and pay its operating costs, then it may easily collapse.

How technology can improve your cash flow

As an entrepreneur, the bad news is you really do have to stay on top of cash flow. Otherwise, your business can easily go bankrupt. The good news is that you no longer have to deal with the complicated and tedious Excel spreadsheets or hire professionals to improve your cash flow. The modern world has invaluable cash flow tools for big, medium and small businesses. Most of them are available for free or at very affordable rates. Below are 7 ways through which this technology can improve your cash flow:

Convenient mobile banking

Thanks to modern technology, financial institutions now offer banking apps that you can use right on your smartphone. These apps make cash flow management easier, accurate and convenient. You can make payments, accept payments, transfer funds, deposit mobile checks, monitor your accounts etc. without having to make any trip to the bank.

By eliminating the multiple trips to the bank, mobile banking saves your company some transport costs. Besides, mobile apps tend to be cheaper compared to face-to-face banking, which also contributes to their cost-saving nature. Combined, these factors enable your business to save costs and improve monetary inflow in your cash flow.

Because of these benefits, it's always better to bank with an institution that has a robust mobile banking platform. This is especially important for small businesses.

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Quicker access to credit and financing

Fintech is one of the biggest technological advancements of our time, particularly for small businesses. Short for financial technology, fintech refers to the use of technology to enhance and streamline financial services. It simplifies the process of accessing credit as well as cash that you have in your account.

By offering credit, fintech lenders allow entrepreneurs to get immediate access to money that can cover cash flow gaps. Nearside, for example, offers a mobile app that lets you apply for a small business line of credit. This may come in handy when your cash inflows are running low.

Plus, it's because of fintech that you can check your account balance, transact your account, receive payments, make payments etc. from your phone for free or at a very low cost. And as already mentioned, any cost-saving technology will improve inflows in your cash flow.

Electronic payments

One reason why small businesses struggle to maintain a good cash flow is because only 63% of small business invoices are paid on time. The rest either take more than 30 days or are not paid at all. Delayed and defaulted payments are the biggest causes of a negative cash flow. Luckily, technology offers solutions for both.

With the rise of online payment processors like Square, you can now accept payments on the fly either through an online link or with a card reader that's attached to a smartphone. This ensures that funds are transferred directly to your business checking account. As a result, these payment platforms speed up the processing of receivables.

With ACH processing, you can even set up a system for collecting recurring payments from customers. There are no checks involved and no chasing invoices. As soon as a payment is due, the ACH will automatically deduct the amount payable from your client's account and deposit it in your account. This automation reduces the chances of defaulted invoices while also speeding up the payment process. Ultimately, it improves your cash flow by ensuring that almost all your receivables are paid.

Improved ledger management

Accounting software like QuickBooks and Xero do a lot more than basic bookkeeping. They also help your business with ledger management and tracking. They can show you what your business owes, what it's owed, and what's due at any given time. This wealth of information can help you plan your finances better and keep your cash flow positive.

Additionally, most of these accounting tools come with invoicing features. They allow you to send out due invoices immediately from your smartphone or computer. Some - like QuickBooks - can automate recurring invoices, thus eliminating the process of preparing invoices. And to ensure that most (if not all) your invoices are paid on time, most accounting software also include reminder notices. Send them out when an invoice is due or past due to encourage timely payments.

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Better budgeting and expense monitoring

Apart from insufficient revenue, a bulk of cash flow problems come about because of unchecked expenses. This is what makes proper budgeting and expense monitoring critical to small businesses. You can do both with modern technology thanks to cash flow tools like Mint.

They don't just show you where your money is coming from, they also tell you where it's going. By keenly monitoring inflows and outflows, you can figure a way of balancing revenue and expenses so that your cash flow stays positive.

Furthermore, when you monitor expenses, you're best placed to optimize your budget to suit your business's needs. For example, you can allocate resources based on ROI. That way, you'll put more money in activities that earn the highest revenues.

You can even put parameter in place so that the app (like Mint) notifies you when an expense goes beyond the set limit. This could help you arrest potential cash flow problems before they arise.

Easier inventory management

Modern inventory management tools help small businesses to easily make orders, ship products and clearly know how much inventory is remaining. This doesn't just help you understand the movement of your inventory. It also paints a clear picture of your cash position because it shows your payables and receivables. When payables start growing faster than receivables, you'll know that you're looking at a potential cash flow problem.

Improved scheduling

Late fees and penalties are among unnecessary expenses that greatly harm the cash flow of small businesses. You can easily avoid them by using scheduling apps like Buddy Punch. They don't just create employee schedules, but they also send you alerts when your payments are due. This includes payroll, overdrafts, interest etc.

By staying on top of your payments, you can avoid penalties and late fees that often cripple small businesses. And as a bonus, this technology helps you manage your staff, payroll and employee benefits.

In Summary

By properly managing your invoicing, expenses, receivables, and inventory, you can easily improve your cash flow. Couple that with quick access to credit and convenient banking and your business will continuously record a positive cash flow. With the available technology in the form of apps and software, you can achieve the goal without spending an arm and a leg.

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