Avoiding life’s negatives is generally a noble aim. And when it comes to cash flow, every business owner wants a positive outcome. Running low on cash signals trouble ahead. Judicious management of cash flow is more crucial to sustainable operations than generating new sales. After all, a business can survive slower revenue, but not without cash. The usual methods for enduring a cash crunch are establishing a line of credit, negotiating terms with vendors, and offering discounts for early-paying customers. Implementing a couple more creative measures, however, can result in permanent cash flow enhancements.
One important cash-saving procedure is timely remittance of taxes. Income tax payments in particular are supposed to be made in equal installments throughout the year. Penalties are assessed if you underpay the required estimated tax installments. Waiting to pay after year-end may mean parting with a surprisingly large chunk of cash. If you’re not sure how much taxable income to expect for the year, the IRS has a “safe harbor” formula based on your tax in the prior year. Your accountant can make this calculation, but doing so necessitates filing your tax return by the initial due date.
Another technique can improve cash flow for a business that receives recurring customer payments, such as contract work. This is accomplished with direct electronic payment using the Automated Clearing House (ACH). ACH transactions may be established with your customers to push funds directly to your bank account. Similarly, an ACH direct debit arrangement permits your bank to pull funds from a customer for preauthorized amounts. These methods eliminate invoicing and waiting for payment. The result: faster cash flow and a better bottom line.