Importance of Cash Flow Management

Management of cash flows is very important, because cash for any commercial organisation is comparable to the blood in the human body. We must weed out dogs and choose and retain cash cows, even if a leaner margin. Managing such cash cows should not be counter productive. (...) Read more? Sign up for free

Jaap de Jonge
Editor, Netherlands

Importance of Cash Flow Management

As per research studies that have been conducted, a very large percentage (up to 80%) of businesses fail due to poor cash flow management. This statement alone should suffice in emphasizing the importance of good cash flow management.

Indeed cash flow is the lifeblood of any business. It comes from sources like payments from customers, receipt of a loan, monetary infusion from an investor, or interest on savings or investments.
Cash flow management is also important because it enables timely payment for things that make your business run:

Positive, steady and growing cash flows please BANKS, FINANCIAL INSTITUTIONS, CREDIT SCORING COMPANIES AND INVESTORS.
Also efficient cash flow management ensures that necessary funds will always be at the disposal of various managers when they need it. By timing the receivable and payables correctly, the company will always be in a position to honor the obligations to VENDORS on time. A business paying up on time is successful in building a relationship of trust with the vendor. It will also be possible to negotiate better credit terms with a satisfied vendor.
Thirdly, efficient cash flow management ensures timely disbursement of regular expenditure, in particular salaries for its EMPLOYEES. Regular salaries keep the employee morale high so they are less prone to leave their employer for better opportunities elsewhere.