1. What is Cash Flow Management?
Cash flow is described as a real or virtual movement of money, and is mostly used to describe uncertain payments that are expected to happen in the future and therefore need to be forecast with cash flow management. It’s critical management of the lag between when you pay and when you receive.
As consumerism has become more convenient for consumers in the modern world of transactions, with credit cards and insurance, the cash flow process has only become more difficult to manage. These simple conveniences for consumers means more risk for businesses.
Let’s take a look at the healthcare industry for example. It once used to be a practice provided the patient a service and the patient in return paid them. Now that most people have insurance, it doesn’t really work this way. Healthcare is mostly insurance based, meaning healthcare now provides services “assuming” they will get paid, but not guaranteed. And even if they do get paid, there’s no certainty when.
This risky business is becoming more complicated for healthcare practices. Because of these payment lag issues, healthcare practices must be properly planned, and cash flow management is critical.
Properly managing cash flow means you must prioritize. Ask yourself what gets paid first and what can wait. Every business will have different priorities, and having a deep understanding of your business to prioritize is important.
In healthcare as in any other business, rent/mortgage, payroll and utilities always comes first. What comes next should always be prioritized, things that bring revenue to your business should always be on top of the list, even amongst those make sure you know exactly your biggest bangs for the bucks. Know your critical vendors for those critical service lines! There are always lesser important things, those should be on your fingertips too.
3. Accounts Payable, Accounts Receivable
A lot of your cash flow management rests on the shoulders of your AP, and AR departments. Together they must understand the importance of priorities and what they are, as well as have a strict check and balance system in place. Separately AP and AR are very different people.
You can benefit from your accounts payable being of more relaxed and dragging nature, as they may need to leverage relationships and terms, while holding off and delaying payments until feasible to pay them. On the other hand, you can greatly benefit from your accounts receivable being a little more aggressive in negotiations to make sure your business is paid in a timely manner.
4. Cash Flow Projections
Cash flow projections can be done weekly, monthly, and even quarterly. While cash in hand is not a big issue for a retail business, however; businesses with lag between services and payments, should plan on doing cash flow projections on a monthly basis and even following up on your projections on a weekly basis. Putting all your payouts together for each month, then planning each week as it comes.
Who, When, Why?
Determining who you have to pay, when you have to pay, and why you have to pay, is a good start. Each transaction must be well thought out. Never assume you can cover your expenses. It’s important to drill your cash flow down to the exact penny to know your exacts cash flow projections.
Your cash flow projections can change monthly, and requires effective management. Properly managing cash flow means always looking for a better deal, but remember cheaper is not always better, don’t forget to read your terms.
5. Short Fall is Inevitable
There will always be times of unforeseen expenses, and you’re in need of cash. Utilizing a business credit card should be your first option, and using it smartly can save you. Your business should always have a line of credit available, but should always be your last resort when meeting a shortfall.
As you can see cash flow management can be a finicky process, and is best handled by a professional with much experience in the field. Healthcare management companies like NCP Healthcare Management, specialize in areas like managing cash flow for healthcare practices. Contact us to learn how we can help your practice.