Strategies for Reducing Cash Flow Gaps

The client owes you $100K. You owe vendors $50K. Both are due this Friday. Guess what usually happens? The client pays late. The vendors want their money now. This is the AR/AP trap nobody warns you about. The reality for most mid-market companies: → Average AR days: 47 → Average AP days: 30 → Cash flow gap: 17 days of operational funding needed This silent cash flow gap creates a perpetual working capital shortage that worsens as you grow. As a CFO, I see it all the time: Businesses focus on sales and margins, but neglect the timing gap between collections and disbursements. And often, this timing gap is bigger than their profit margin. The quantifiable impact: - Each day of AR improvement = 1% annual cash flow boost - Missing 2% early payment discounts = 24% lost annualized return - Damaged vendor relationships = higher costs and tougher terms The liquidity equation is simple: → Beginning cash + collections - disbursements = ending cash But execution is where businesses fail. Top-performing companies do this differently: - Enforce clear invoice terms - Start systematic collections before the due date.  - Implement strategic vendor payment scheduling - Track cash conversion cycle metrics at the executive level. Cash flow management isn’t bookkeeping. It’s a strategic weapon for building enterprise value. What specific cash flow gap is holding your company back? Follow Amit Kumar for more insights on accounting and finance. #accountspayable  #finance  #accountsreceivable

Paying early is always best, right? Absolutely not, here's why: I watched a growing tech company nearly collapse last quarter. Because they were paying every invoice within 10 days to "maintain good relationships." Meanwhile, their cash reserves hit zero. Their payroll was delayed by two weeks. Their accounts payable team thought early payment showed financial strength. Reality? It nearly killed their business. We restructured their approach: 1️⃣ Cash Flow Optimization – We mapped payment terms to cash needs, ensuring money stayed available for critical operations and growth investments. 2️⃣ Strategic Payment Timing – We leveraged full payment terms (30-60 days) to maintain healthy cash flow while preserving vendor relationships. 3️⃣ Discount Analysis Framework – We calculated when early payment discounts actually made financial sense versus opportunity costs. 4️⃣ Priority Payment System – We categorized vendors by importance and negotiated terms that balanced cash flow with relationship management. 5️⃣ Cash Reserve Protection – We established minimum cash thresholds that accounts payable couldn't breach, regardless of supplier demands. The results? Operating capital increased by $340,000. Smart accounts payable preserves cash for growth. Premature payments can starve your operations. Don't let eager payment policies drain your financial lifeline. #accountspayable  #finance  #accounting  

When cash is tight, you want to look for levers that can bring short-term relief. This comes in the form of: 1. Calling on outstanding AR; the quickest money is the sale you’ve already made 2. Cut excess costs; look for payments coming soon and ask “do we need this?” 3. Openly communicate the problem with vendors and look for those willing to work with you on terms. Other: Offer pre-payment incentives, where applicable. — But don’t forget to look long-term too, because that’ll help reduce the likelihood of being in the position again: 1. Pricing… are you priced appropriately? Are your costs too high? Make sure margins are health to allow for growth. 2. Revisit your terms with both customers and vendors. Shorten customer terms and extend vendor terms where possible. 3. Seek outside financing; the best time to get a LOC is when you don’t need it. Other: improve inventory management, where possible. I’ve seen businesses get focused on the short-term and forget to visit the long term, only to find themselves in the same spot months later. Don’t be that business!

Founders raise a round and assume the cash flow problems are solved. But here’s what no one tells you- More capital won't fix cash flow issues. It’ll just delay the fallout. Because if you’re constantly relying on external funding just to stay afloat, the issue isn’t the lack of money. It’s the lack of control. Here’s how you can improve cash flow without raising a single dollar- 1. If your clients are paying you in 45 days while you’re paying vendors in 15, you’re bleeding cash. Automate your follow-ups. Offer early payment incentives. Be clear with your terms. 2. Forecast your cash weekly. Month-end reports come too late. Weekly cash views help you make timely decisions, especially around payroll and fixed outflows. 3. Overstocking inventory ties up the working capital. Keep enough to meet demand. 4. Structure retainers. Take milestone-based payments. Avoid waiting 60 days to get paid for 60 days of work. After all, capital should be for scaling what works, not rescue what’s broken.