Planning for Cash Flow in Your Business

By Lita Epstein from Bookkeeping For Dummies

The process you go through each month as you prepare to close the accounting books for your business helps you plan for future cash flow. Reviewing the Accounts Receivable and Accounts Payable Aging Summaries tells you what additional cash you can expect from customers during the next few months and how much cash you’ll need in order to pay bills for the next few months.

Following is an example of an Accounts Payable Aging Summary:

Aging Summary: Accounts Payable as of March 31
Vendor	Current	31–60 Days
American Bank	$150
Carol’s Realty	$800
Helen’s Paper Goods		$250
Henry’s Bakery Supplies		$500
Plates Unlimited	$400	$200
Total	$1,350	$950

If you notice that your Accounts Payable Aging Summary indicates that more and more bills are slipping into past-due status, you may need to find another source for cash, such as a credit line from the bank.

For example, the Accounts Payable Aging Summary shown above reveals that three key vendors — Helen’s Paper Goods, Henry’s Bakery Supplies, and Plates Unlimited — haven’t been paid on time. Late payments can hurt your business’s working relationship with vendors; they may refuse to deliver goods unless cash is paid up front.

If you can’t get the raw materials you need because you haven’t paid bills in a timely manner, you may have trouble filling customer orders on time. The lesson here is to act quickly and find a way to improve cash flow before your vendors cut you off.

You may also find that your Accounts Receivable Aging Summary reveals that certain customers are gradually becoming slow or nonpaying customers. The bookkeeper dealing with these accounts may need to consider putting a hold on the accounts until the payments are received in full.