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Use Cash Outflow Timing to Your Advantage
August 30, 2022

Slowing cash outflow in your business enables you to hold onto cash longer so you have more money available and more flexibility in your business. Here are some ways to slow cash outflow.

Accounting Software. Today’s accounting software can closely monitor accounts payable so you can keep cash in your account as long as possible while still meeting the due dates for all your payments. Even if payables are not due for 45 or 60 days, enter them into your system when they are received, including the invoice date and the date payment is due. This will enable you to see at a glance how much you owe and how much cash is available to you at any given time. It typically takes 5 business days for a check to reach the recipient by mail. If you are mailing a check, count back 5 business days from the payment due date, add an extra handling day for safety and mail the check that day. You can do this even if your software generates the checks. Check the instructions for your software.

Electronic Invoice Payment and Presentment (EIPP). If your vendors offer EIPP, see if you can select this option. EIPP means you receive invoices by email. You can then enter them into your payables system and schedule payment by debit. This can eliminate worries about your check arriving by the due date. To optimize your cash flow, you want the debit to take place on the required payment date, not on the invoice date.

Credit Cards. Using business credit cards wisely can help you slow cash outflow. If you have a bill (such as a utility bill) due in 30 days, wait until it is almost due, then pay it with your business credit card. When the credit card bill is due (25 days later), pay it off. You have effectively extended your payment period to 55 days rather than 30. For this tactic to work, you need a credit card that has a grace period (does not start computing interest when you make the purchase) and you must pay it off in full each month. You might earn mileage points or other rewards for using the card, which can help you conserve even more cash.

ACH Credit. ACH (i.e., Automated Clearing House) credit can be used to schedule and manage payments so you can hold onto your cash as long as possible and always know exactly when the money will leave your account. ACH credit operates through the Federal Reserve Bank. Instead of withdrawing (or debiting) money from another’s account (ACH debit), ACH credit allows you to credit another’s account for a certain amount on a specific date. It is similar to online bill payment, but in this case, you originate the payment and know the receiving party’s bank routing number and bank account number. Most banks now offer ACH debit and credit to small businesses at low or no cost. You can use ACH credit to pay companies (your vendors) or individuals (your employees).

Will It Work For You? Not all of the above tactics will work for every business, but you should be able to use some of them to manage your cash outflow more effectively. Consider the ongoing payments your business has, and whether one of the above tools can be used to help decelerate these cash outflows.

A SCORE Mentor can help you complete this exercise and determine your next steps. SCORE has over 13,000 successful and experienced executives with small business know-how who want to provide you with free business advice.

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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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