You may be very familiar with the assertion that cash is the lifeblood of all business. But, have you been doing enough to improve income or cash flow in your company ?

In general, some of the problems associated with poor cash flow include slow collection of accounts receivable, buying too much inventory, or slow turnover of same, high expenses, high payroll, too much debt, and when, in general, spending is greater than earnings.

This week, our adviser on reversing the cash flow malady is Bernadette Barrow, assistant general manager, small and medium enterprises at NCB's retail banking division.

Barrow first notes that cash-flow management refers to the process of monitoring and analysing the flow of cash in your business.

This process allows for the anticipation of shortfalls and identifying sources to plug the gap - for example, through a temporary overdraft facility with the agreement of your bank.

Not only will cash-flow management enable a business to determine the likeliness of a cash shortfall or surplus, it also estimates the cash on hand at any point in time and projects trends in cash inflows and outflows.

Here are some strategies to improve your cash flow:

1. Customer management

Ask customers to pay sooner.

Use an aged debtor list to keep track of invoices that are overdue and monitor performance in getting paid.

Chase debts promptly and firmly - it's called receivables management.

Consider offering discounts for prompt payment.

Improve profitability by pricing products and services properly, inclusive of the cost of offering credit.

Receive payments via electronic-banking channels to minimise trips to the bank to lodge cash received from customers. This method also minimises the security risk of handling cash.

2. Supplier management

Ask for extended credit terms with suppliers.

Make payments to suppliers on the last allowable date for payment - for example, if 75 days' credit has been granted, make payments to supplier on Day 75.

Order less stock but more often.

Make payments to suppliers using credit cards but make sure to clear the credit-card balance within the 'no-interest' window, which varies across banks but goes up to 55 days.

3. Taxation

If the business is registered for GCT, it makes sense to buy major items at the end, rather than the start, of a GCT period. This can often improve cash flow, because the business can set off the GCT on the purchase against the GCT you charge on sales. This may help plug a temporary cash-flow gap.

4. Asset management

Consider leasing fixed assets, for example, equipment, or buying them on hire purchase.

Buying outright can result in a huge drain on cash in the first year of business.

5. Utilising your cash-flow forecast

Change and adjust cash-flow forecast frequently depending on business activity, payment patterns and supplier demands.

It's helpful to set up a regular review of the forecast, changing the figures in light of your sales, purchases and staff costs. Legislation, interest rates and tax changes will also impact on the forecast.

Having a regular review of cash-flow forecast will enable you to: see when problems are likely to occur and sort them out in advance; identify any potential cash shortfalls and take appropriate action; and ensure you have sufficient cash flow before you take on any major financial commitment.

Remember that cash is the primary indicator of business health. It is far more important than profit.

While a business can survive for a short time without sales or profits, without cash it will die.

Email Bernadette: barrowbd@jncb.com