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Cash outflows are the movement of money out of your business. A few examples of cash outflows are paying expenses, purchasing property or equipment, or paying back a bank loan.
The key to improving your cash flow with regard to cash outflows is to delay all outflows of cash as long as you possibly can. However, you still need to meet all your outflow obligations on time. Delaying cash outflows makes it possible for you to maximize the benefits of each dollar in your own cash flow. Seeing the benefit of delaying your cash outflows is the first step in managing them.
The proper management of cash outflows requires you to track and manage your business liabilities. Managing your cash outflows also requires that you follow one simple, but basic rule: Pay your bills on time, but never pay your bills before they are due.
- Trade credit is an important tool for managing your payables and expenses. Without trade credit, you'd have to pay for all your purchases of merchandise and services at the time of purchase (or use a business credit card). Instead, trade credit allows you to defer cash payments to suppliers until a later date, without calling credit card interest and limits into play.
- Taking a trade discount is one exception to our basic rule regarding paying your bills. A discount may be available if you pay your bills quickly, within a certain time period.
- When to take a trade discount: how do you know if it's worth taking the discount? We show you how to calculate your savings.
- Our case study on trade discounts illustrates how a small business decides to take advantage of a discount, or not.
- Negotiating payment terms with your suppliers and vendors, or deferring expenses, are two more methods of delaying your cash outflows.
- Using the float between when your check is written and when it is cashed is a common, but somewhat risky, way handle a temporary cash shortage.