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Why am I running out of cash if my company turns a profit?

Updated: Jul 24, 2021

Many business owners think that if their company turns profit, then they should have money in their bank accounts. Unfortunately, the reality could not be further away. Making a profit is great and definitely needed for a business, however, having the cash in the account is not going to happen unless you get your accounts receivable and payable under control.

Accounts receivable (AR) is all the invoices you billed to customers, but have not yet collected. Meaning, you have the potential of getting X amount of money (e.g.: the total AR) but until your collections department doesn't get hold of the customers to ensure payment is received, you bank account will remain 'dry'.

Accounts payable (AP) represents all payments that your company has to make. For example: property tax, rent, utilities, contractors, consultants, vendors, etc. If payments go out before you receive money, that could be another reason why your bank account has less money then you'd expect it to.

So, what's the solution?

1) Ensure your AR is always under control, meaning: do not let outstanding balances sit there for more than 60 days. The longer it does, the harder it's going to get collecting it

2) Paying on time is definitely essential and required, but if you are not getting paid as fast as you're expecting (i.e.: as per your payment terms), then you should prioritize your payments to other service providers

Can you think of other reasons why your cash isn't as high as you'd expect it to be?

MLHC can assist in better understanding how your cash flows and how to improve it.

Contact us today for a free 15-minutes consultation.


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