Cash is a business's life blood and every manager's primary task is to help keep it flowing and to use this cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. The faster a business expands, the more cash it will need for working capital and investment.

The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.

Cash flow can be significantly enhanced if the receivables are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed.

Management of payables is just as important as the management of receivables. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble!).

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc.

When planning the development of a business, it is critical that the impact of working capital be fully assessed when making cashflow forecasts. Our financial planning software packages - Exl-Plan and Cashflow Plan - can facilitate this task as they provide for the setting of targets for receivables, payables and inventory. See also the Checklist for Improving Cashflow.