La cash management Cash flow management is the discipline of tracking, forecasting, and optimizing a company's available cash. Healthy cash flow means the ability to pay suppliers, salaries, and expenses on time—the primary condition for the survival of a very small business (TPE) or small and medium-sized enterprise (SME). This guide details the methods and tools for effective cash flow management.
What is cash management?
Cash flow refers to all the liquid assets available in a company's bank accounts. Cash management encompasses three key functions: monitoring the balance in real time, anticipating future cash inflows and outflows, and optimizing cash use by investing surplus funds and financing downturns at the lowest possible cost.
Cash flow and profitability are often confused: a profitable company can go bankrupt due to a lack of liquidity if its customers pay too late while its expenses are due. Liquidity management bridges the gap between accounting profit and the reality of the current account. Therefore, monitoring cash flow is a vital necessity, not an option.
Why cash flow is vital for a micro-enterprise/SME
A quarter of business failures in France stem from cash flow problems, not a lack of activity. The financial risks are tangible: late customer payments, unexpected equipment failures, and seasonal sales fluctuations. Without a cash buffer, every unforeseen event becomes a crisis; a company's financial stability depends on its ability to absorb them.
Effective cash management also offers offensive advantages: negotiating supplier discounts by paying cash, seizing purchasing or investment opportunities, and reassuring banks to secure financing. Risk management and value creation go hand in hand; well-managed cash flow is a strategic asset within a company.
The method: plan, monitor, decide
The first step is the projected cash flow statement. This table lists, month by month, all expected cash inflows (sales, financing) and all anticipated cash outflows (purchases, salaries, rent, taxes, VAT). The resulting balance reveals the months of financial strain and the financing needs. Working capital requirements (WCR) are directly related: this is the money tied up between payments to suppliers and receipts from customers.
Second step: weekly monitoring. Compare actual results to projections, analyze discrepancies, and update the plan. This fifteen-minute routine provides a clear overview of progress and allows you to anticipate rather than react. Third step: making decisions. Every decision (hiring, investment, campaign) is first evaluated based on its impact on cash flow and working capital.
Optimizing your cash flow: concrete levers
- Accelerate cash collection : invoice issued upon sale, deposit upon order, automatic reminder of outstanding payments, online payment;
- Controlling disbursements : obtain better supplier deadlines, spread out large expenses, avoid unnecessary outflows;
- Reduce working capital : limit stocks, invoice faster, review payment terms;
- Invest surplus cash : fixed-term account, monetary investment; money that sits idle has an opportunity cost;
- Securing emergency funding : short-term credit line or factoring negotiated before needing it, when the negotiating position is good.
Banking relationships are an integral part of the job: a banker who is regularly informed can monitor business activity and better manage unforeseen events. Transparency and proactive planning are the best arguments for negotiating a rate or meeting a specific deadline.
Cash management tools
The Excel spreadsheet remains the classic starting point for simple and free forecasting, but it's manual and quickly becomes outdated. Cash management software goes further: it connects to bank accounts, automatically categorizes transactions, provides real-time consolidated balances, offers rolling forecasts, and sends alerts for critical thresholds.
For a very small business, the best approach is often to use its invoicing system as its primary cash flow management tool: Djaboo It tracks each invoice, follows up on late payments, and displays expected income—the raw material for sound cash flow forecasting. Combined with bank monitoring, this process covers the essential day-to-day operations of a small business, with a simple service and controlled cost.
More structured SMEs add dedicated cash management software (Agicap, Fygr, etc.) to consolidate several bank accounts, manage several entities, and run scenarios: what happens if sales fall by 20%? What if a major client pays in 90 days? This simulation function transforms financial management into a strategic steering tool.
The treasurer: a role that becomes more structured with the size of the company
In a very small business, the owner is the de facto treasurer: they monitor the account, decide on payments, and manage the relationship with the bank. In a small or medium-sized enterprise (SME), this role is shared with the accountant or the CFO. In large companies and groups, the treasurer is a profession in its own right: managing liquidity within an international group, foreign exchange transactions, capital investments, financing subsidiaries, and managing interest rate risk.
Regardless of company size, the principles remain the same: cash flow visibility, anticipating needs, and optimizing cash flow. What changes is the tools used, from simple spreadsheets to market-leading software, and the level of involvement: the larger the business, the more formalized the treasurer's role must be, with written processes and regular reports to management to maximize performance.
Cash flow at the heart of financial management
A company's financial health is reflected in its cash flow. A CFO knows this: the income statement tells the story of the past, cash flow describes the present, and the cash flow forecast illuminates the future. This is why modern financial analysis places equal importance on cash flow and profitability, the two key indicators of financial performance.
To ensure sound financial management, set three cash flow objectives: a minimum safety balance (covering one to two months of expenses), an annual cash flow budget broken down by month, and an action plan in case of an alert. These simple objectives ensure business continuity, engage the management team, and manage financial risks before they become significant. The surest way to achieve this is through a written management routine, including a monthly cash flow report.
Don't forget the tax and social security aspects: VAT, social security contributions, and income tax—these mandatory payments weigh heavily on a company's cash flow. Setting aside funds for these expenses each month in a dedicated account is a sound foundation: the company's finances become more transparent, and tax obligations never come as a surprise. Rigorous financial management is the best way to ensure long-term financial stability.
Three typical situations (and how to handle them)
Rapid growth Paradoxically, growth devours cash flow; more sales mean more working capital requirements to finance. Anticipate appropriate financing with the bank, monitor cash flow weekly, and invoice for advance payments. The goal: ensure that every receipt arrives before the corresponding expense.
Seasonality A seasonal business needs to build up cash reserves during the peak season to get through the off-season. Investing surplus cash in readily available instruments (fixed-term accounts, money market accounts) allows for optimization without taking on market risk. It's a simple optimization method, with modest but useful returns; every bank offers this type of service.
Customer who pays late The classic approach. A three-step process: automatic reminders upon the due date, a call on the tenth day, and a formal notice on the thirtieth. Simultaneously, diversify the company's client portfolio: no single invoice should represent more than 20% of the expected monthly cash flow. Managing customer risk is crucial on a daily basis, and it's everyone's responsibility, from sales to finance.
Your 10-point cash flow strategy
To establish a sustainable strategy, review these key points during the review process: a dedicated current account for each activity; a 12-month cash flow forecast; a validated annual cash budget; a liquidity buffer equivalent to one to two months of expenses; a monthly variance analysis; maintained banking relationships with each institution; a collection procedure involving the entire team; automatic investment of surplus funds to maximize returns on idle cash; a quarterly profitability review; and a contingency financing plan. Using this checklist quarterly ensures sound management, reduces exposure to unforeseen events, and allows you to monitor the company's financial performance.
One final piece of advice, valid regardless of company size: cash flow is everyone's responsibility. From the salesperson who secures an advance payment, to the accountant who processes every transaction on time, to the manager who decides on a major investment or a bond: every function is involved. In an international group as well as in a very small business, managing liquidity risk relies on this shared understanding. Banks and the market are more willing to finance a company whose cash flow management is demonstrably controlled, moment by moment, revenue by revenue. A well-planned operation leads to smoother management later on: this provides your company with the resources for growth and gives the manager true banking freedom on a daily basis.
F.A.Q
What is the difference between cash and working capital?
Working capital is the structural resource (long-term capital less fixed assets); cash is the cash actually available at time T. Working capital requirement makes the link: cash = working capital less working capital requirements.
How to create a cash flow forecast?
List your expected monthly income and expenses over 12 months, calculate the cumulative balance, and update weekly. A spreadsheet and a budget are all you need to get started; banking software then automates each operation, the update process, and the database.
What to do in case of negative cash flow?
Act quickly to manage the emergency: follow up on overdue invoices, conduct an immediate cash flow assessment, postpone non-urgent expenses, negotiate payment terms with suppliers and the social security administration (Urssaf), secure a short-term line of credit or factoring to bridge the gap, and develop a plan for available funds. Then address the root cause by reducing working capital requirements.
Does a very small business need cash management software?
Not necessarily at the outset: well-equipped invoicing and weekly bank monitoring cover day-to-day needs. Dedicated software becomes useful in case of growth, multiple accounts, or strong seasonality, to evaluate scenarios and cover each situation.
To put this into practice: Manage your cash flow on a daily basis with Djaboo's dedicated module..
Explore more!
- Accounting for very small and small businesses: the complete guide
- Cash flow plan: model and forecast
- Financial dashboard: key indicators
Cash flow monitoring goes hand in hand with good bank reconciliation softwarewhich automatically reconciles your bank statements with your accounting records.
