Many business owners fail miserably at managing cash flow, the Canadian Institute of Chartered Accountants and Canadian Imperial Bank of Commerce say in a new toolkit to be released Friday. Better management of accounts receivable and accounts payable are perhaps the most crucial aspects:
Collecting the cash: If customers believe they can use you to finance their own cash needs, they will, says Grant Thornton LLP, which advises clients to make more determined efforts to collect from slow-paying customers. "As receivables become older, they can become more difficult to collect," adds the CICA and CIBC. "One of the keys to controlling accounts receivable is having very clear payment terms and following up with aggressive action if they are missed."
Optimizing accounts payable: "If your business has a cash surplus, given the low interest rates that can be earned on excess cash, there may be merit in prompt payment to maintain a good reputation," the CICA and CIBC say in their toolkit. "Businesses that are able to pay early can take advantage of their position to negotiate discounts; even a 1-per-cent discount for paying in five days instead of 30 days represents a rate of return well above what could