Business Cash Flow: Cash/Equivalents In

This is the money flowing into the business from various sources as liquid cash funds. It is immediately available for use to pay employees, bills, or other business expenses. These are the common cash-in items you could have in a cash flow projection spreadsheet.

If you use Excel, you can search the free templates with “cash flow” to get the one in the image above. Or, you can go to the Web and search for “free cash flow projection spreadsheet.” You’ll find one or more. The sheet will have both the in and out cash flows, but the out side is the topic of another article. These are the common cash-in items you may have in your business.

Cash Sales

Though this may seem simple, as you just try to sell as much as you can during the period, you do have tools at your disposal to increase cash sale amounts without necessarily increasing the number of cash sales.

Bundling

You’ll see this a lot online. You’re about to order an item and you get a popup or sidebar offer of related items to increase the size of your order. You may be offered a discount for multiples, or the discount is based on dollar volume, or you get a BOGO, (Buy One Get One) free offer.

You also see this a lot on TV offers, with the pitch finished, you’re offered a second one free, only being charged a fee for shipping and handling.

While you are discounting the sale of additional items using these strategies, you are increasing the dollar amount of the transaction. Your overhead hasn’t changed, though shipping may increase a little. You’re still spending the same amount for overhead, employee time, processing, packaging, etc.

When you think about it, if you have no idea if this customer will ever return to order additional items, why not give up a little bottom line money to increase cash into the business right away?

If you are a business with a lot of repeat customer buying, you may not want to use this strategy unless they’re buying the same things over and over again. You aren’t discouraging them from ordering these items again, instead you’re encouraging them to expand the items and dollar amounts of each order.

Quantity or Order Amount Discounting

Along the same lines, no matter what you sell, if you offer a discount to increase the quantity or dollar amount of an order, you increase the cash flow into the business.

A freelancer designing or maintaining websites for businesses at an hourly rate may offer a package of hours at a small discount if prepaid. If you’re doing regular work for the customer, your relationship may be such that you can offer a package of 20, 50, or even 100 hours at a 10% to 20% discount for prepayment.

For 100 hours, you could offer smaller incremental payouts with increasing discounts.

• First 25 of 100 hours prepaid at a 10% discount.
• Next 25 hours prepaid at a 15% discount.
• Next 25 hours discounted 20% for prepayment.
• Etc, you’re getting the idea.

Massage the numbers any way you want, just give your customer an incentive to move your cash flow forward. Think of other ways in which you can boost order amounts or move cash flow forward with the same transaction overhead.

Cash Discounts

Every business that accepts credit cards for payment incurs a cost for doing so. Varying usually between 1.5% and 3.5%, depending on the card and how it’s presented, this is a significant negative in the cash flow column.

Offering a small percentage discount for cash can induce some customers to pay cash instead of using their card. Because many cards are now offering their users a 1% or so discount on purchases when using the card, you’ll usually have to do better to get them to use cash.

Debit Card Acceptance

Encouraging customers to use a debit card instead of a credit card can save some businesses money. You should consult your card processor for details, and you may even want to change processors and shop for a better rate.

It gets a bit complicated between PIN number debit transactions and signature debit uses. The methods of processing and the networks change, and so do the rates. If you find that your average transaction amount can result in savings using debit cards, you can put a sign at your point of payment.

Another advantage of some debit card processors is faster deposits of the cash to the business account. This is because the debit card requires the balance be in the account before the charge is approved. This allows the processor to be certain of the funds availability and the extraction of the funds from the user’s account is done quickly.

Every tool you can use to speed the deposit of cash into your account is valuable for speedier cash flow.

Returns & Allowances

Every business has situations where they must refund money or make other adjustments to accommodate customers who have a problem with products, services, delivery, or other aspects of a transaction.

Returns and allowances are part of doing business. Whether the business made an error, sold a defective product or service, or the customer just isn’t happy, returns and allowances happen. They are a negative item in the Cash Receipts section of the spreadsheet, as they are an outflow of cash or non-receipt of cash. They’re in this section primarily because, rather than being an expense of operations, they’re a reduction of sales revenue.

First, improve your products, services, and delivery methods to reduce the instances of error or customer dissatisfaction. Every mistake or defect you avoid through better processes correlates with higher cash sales due to fewer returns or allowances.

Next, if you’ve received the revenue, see if you can offer something other than cash back to fix the problem. A future discount, or additional products/services may be the answer. An example would be a customer complaint about delivery addressed with free delivery on the next order, etc.

Returns and allowances should first be addressed with business processes that minimize instances, and then handled with resolutions that do not heavily impact cash flow or that avoid outgoing cash flow with other resolutions.

Collections & Accounts Receivable

When you are selling products or services and invoicing customers or funding time purchases for them, you should have best practices in place to make sure that your customers pay according to the terms or even faster if you can encourage that.

Discount/Time to Net Terms

A common practice to encourage fast payment of invoices is the discount for speed of payment. You’ll see terms like these: 2%/10 Net 30.

This means that the customer will receive a 2% discount of the due amount if they pay within 10 days. Should they not pay within 10 days, then they must pay the full amount of the invoice within 30 days. You’ll see many variations of this on all three components.

Interest/Penalty for Late Payment

To have any chance of enforcing this strategy, you should have a signature on the order or invoice that indicates the customer’s acceptance of the terms. The business can have a set dollar amount penalty, interest rate on amount owed after due date, or both for an invoice.

Often this is more of an enforcement tool to get payment from a late payer. They reach the end of their terms, the business sends a notice of penalty and/or interest, and they decide to pay the amount owed only. You jog them into payment, and the interest and/or penalty is just the way you get them to finally take action.

Interest, Other Income

There are other ways for cash to enter the business besides sales or services. If they exist and bring cash into the business, the amount(s) would be entered on this line.

Store Credit

Whether a store or a service business, you could offer terms to customers to finance their purchases. Often retail businesses may offer “store credit” with a favorable interest rate and it can spur sales.

The periodic interest received from credit offered to customers is cash flow positive. A balancing consideration is if you have incurred debt for production of your products or services, is the debt interest rate higher than what you’re receiving from your sales? If so, you may be better off paying down debt and not financing for customers.

Investment Income

If the business has investments, stocks, bonds, real estate, etc., income from those investments if received from those accounts as cash would be placed here.

An example could be buying stock or in some other way investing in a supplier or customer’s business. It can be a goodwill gesture, but it also ties the two businesses together for mutual benefit.

A business can also invest in commodities futures. The commodities can be those that are used directly or indirectly in the production of products. The futures investments can be both a hedge against price increases and an income source.

Memberships or Buyer Clubs

Some businesses, instead of having a lot of sales or discount offers periodically, will offer membership in a buyer’s club at a fee. The fee is extra income. The incentive for membership, especially for repeat customers, is a discount on purchases that isn’t offered to non-members.

Membership can also be priority notice and ability to buy new products or newly received products that are in high demand. Some companies offer new products or special sales to members first, before offering them to other potential customers.

Regular membership payments are a reliable source of predictable cash flow. There isn’t any cost to the business if the club offers would have been sales or wide market discount offers in many cases anyway.

Other Income

This can be almost anything that brings cash into the business. Perhaps the business has excess office or warehouse space and rents it out periodically.

The sale of overstock supplies or materials, or the sale of equipment no longer needed would go into this box as well. Sometimes bulk buying at a discount can result in an overstock in inventory for current business needs. Selling off some of it is cash flow positive. Even if you sell it for less than you paid, it’s still positive cash flow. Just like profit isn’t cash, loss may not be cash either.

Think outside the box about ways you can deliver cash into the business.

Loan Proceeds

There can be reasons that a business would make loans to individuals or other businesses. They may not be related in any way to specific purchases or future business.

If a business has loans outstanding, any cash payments of principal or interest would be entered here as positive cash flow.

Owner Contributions

Periodically, whether to increase equity or to fund specific business goals, the owner(s) may contribute cash to the business.

This is something that many business owners experienced during the COVID-19 shutdowns. Businesses were forced to close, cash flow from operations ceased or was greatly reduced. Owners were forced to contribute their own funds to pay rent, salaries, and other expenses to keep the business viable until it could be reopened.

You’ve completed the tools and information section for income into the business. Concentrate on any of the tools to increase cash flow from the positive side. Now, we’ll go into the expense side and how to increase cash flow by decreasing regular cash expenses.

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