Single Ledger — A Global System of Trust

Last month I had an opportunity to deliver a professional development session for CPAs at the Allinial Global Technology Fly-In, where I formally announced PayPie’s Single Ledger initiative, showcasing the proof of concept (POC) for distributed ledger technology to industry participants. Just like anyone else who has dealt with anything related to the blockchain in the last few years, I could feel the mix of excitement, curiosity and anxiety in the air.

There was a time when businesses used to have separate accounts receivable and payable systems, then came on-premise systems followed by cloud accounting and software as a service (SaaS). Now there’s blockchain and distributed ledger — the next step in the evolution of online accounting.

Present challenges — without distributed ledger technology

Currently, financial data is often housed inside different accounting platforms and enterprise resource planning (ERP) systems.

Online accounting (cloud accounting) is a revolution with millions of success stories and it has done a great job solving problems that have plagued the industry for years. Most of these systems allow for the creation of accounting transactions and nearly real-time financial statements. They also significantly accelerate the reconciliation process. The result is a wealth of valuable business data.

But, all this crucial information is often siloed and there’s no universal system for sharing it. All these systems look like an isolated collection of company intranets — islands of data that often fail to extend past the edge of the business.

Anytime a business has to deal with an external third party, the processes for transmission and verification of this data through APIs still require a lot of manual review and cross-checking. Dealing with a counterparty, even with the most diligent efforts, is time-consuming and prone to errors.

The issue of siloed information is a global challenge across the entire financial services industry. (Actually, almost every industry. But for this post, let’s stick to accounting.)

Next steps — breaking down barriers

The future of the accounting industry lies in collaboration. At PayPie, we’re heading up efforts to facilitate this innovation in the form of our Single Ledger initiative. We have developed a blockchain-enabled technology that will create a global system of trust to connect all these disconnected dots.

The future — distributed ledger technology and global digital IDs

One of the most revolutionary things about Single Ledger is that we are able to assign a unique blockchain-powered global ID to every business through their online accounting system participating in the network.

Through this ID process, all parties within the network are able to identify, validate and trust the information provided. This potential has never existed before and was not even possible before blockchain. Benefits from this global system of trust include:

  • Cryptographically created blockchain IDs that can connect any business in the world using an online accounting system.
  • This same cryptography makes data on the blockchain permanent and immutable. It cannot be changed, altered or modified.
  • Data entry, transactions/settlements will take place in near-real-time.
  • End-to-end transparency will eliminate the need for middlemen and costly, time-consuming third-party clearing houses and validation processes.

The mission of PayPie’s Single Ledger initiative is to connect businesses in order to further develop a trusted, self-validating ecosystem with the potential to radically change current business models.

Here’s a video example:

The heart of the evolution — collaboration

If you are an online accounting and/or financial data producer, a vendor using an online ERP partner with us to advance the potential of this technology.

As a participant in the ecosystem, you’ll ensure the authenticity and origin of the data that originates from your accounting platform. At the same time, your customers control who they would like to share data with, just like they do now.

Single Ledger ensures the integrity of the data and provides automated guaranteed delivery for all the transactions to the counterparty.

The more participants we engage, the sooner we’ll be able to usher in the next generation of online financial information and end “garbage-in, garbage-out” (GIGO) problem.

Current data import and extraction systems, including OCR, are clunky. Together, we can automatically and accurately code all transactions and do all the heavy lifting of bookkeeping — saving our customers (and ourselves) from endless hours of data entry.

In the same way that cloud computing has changed the way software is used and distributed, Single Ledger will transform how accounting data is authenticated at the origin, validated and shared.

Here is a proof of concept demo of the Single Ledger in action narrated by Single Ledger’s CEO, Nick Chandi:

Keeping facts while removing friction

“The methods behind blockchain accounting are so revolutionary that some believe it could end the 700-year reign of double-entry accounting.”
QuickBooks Canada Team

Who knows… with the adoption of Single Ledger, we may not even need invoices by 2028! When users assign permissions to their data from the accounting platform of their choice, they remain in the driver’s seat while controlling the usage of the shared data.

Rather than financial information being passed back and forth like a frantic game of ping pong, Single Ledger may change the game entirely. Through the evolution of Single Ledger, the ball may one day stay in one place, in their accounting system — where everyone can access it simultaneously, a dream come true for vendors, auditors, lenders, banks and tax authorities.

Together — we can make the next transformation happen

We’ve begun an industry-wide initiative to engage more thought leaders, build a multi-faceted data ecosystem and develop further use cases based on the blockchain economy. I foresee a vibrant and robust environment where information sharing is automated via smart contracts — created, owned and executed by business users.

  • Let’s take the heavy lifting out of accounts receivables and payables — creating win-win collaborations.
  • Let’s reduce the cost of doing business by letting stakeholders place greater trust in your customers.
  • Give businesses greater power and control over their financial data.

Join us today and enhance this system of trust — Single Ledger!

Stock images via Pexels.

Distributed ledger infographics via singleledger.org.

Cash Flow Statement and Cash Flow Forecast: Why You Need Both

cash flow forecast vs cash flow statementCash flow is a make-or-break factor for small to medium-sized enterprises (SMEs). Whether you’re a manufacturer or a service-based business, you pay your expenses and fund your business through money that comes from your operating cash flow.

Managing cash flow is crucial to ensuring that you have enough money to cover the bills, fuel growth and respond to the unexpected. However, many businesses walk an extremely fine line with only enough cash reserves to cover 27 days of expenses. Depending on the industry, some businesses only have a $7 difference between the money coming in and the amounts owed.

At PayPie, we realize that If you want your business to survive, you have to keep a close eye your cash flow using both your cash flow statement and cash flow forecast. Each tool plays a pivotal role in providing you the information you need to identify your strengths and weaknesses.

27 days of cash flow

Your cash flow statement: What it is

There are three financial statements that every business should create and review on a regular basis: your income statement (profit & loss), balance sheet and cash flow statement (statement of cash flows). (All of these statements are pulled from the data entered into your accounting software.)

Your income statement tells you if your business is earning a profit and your balance sheet compares what you own to what you owe. A cash flow statement, which pulls numbers from your income statement and balance sheet, shows how cash is being used within your business.

A cash flow statement compares inflows and outflows in three areas:

  • Operations — The day-to-day costs of producing, promoting and delivering your bread-and-butter products and services.
  • Investment — For most SMEs, this is the purchase or sale of capital investments, such as buildings, land and equipment.
  • Financing — Includes all funding activities.
    • For startups and businesses with investors, investment dollars are tracked here.
    • For businesses with shareholders, related activities are tracked under financing.

There are two methods for creating a cash flow statement: direct and indirect. If you use the direct method, you follow a cash-based accounting system where you track payments as they’re made or received. If you use the indirect method, you follow accrual accounting rules where payments are recorded before they’re received.

Five Stories Your Financial Statements Tell 

Your cash flow statement: What it tells you 

Whether you create a one every week, month or quarter, your cash flow statement shows you how much money you’re bringing in and paying out over that particular period of time.

Another way of saying this is that a cash flow statement indicates your cash position at a set point. It’s basically a summary of this equation:

Cash in (inflows) — cash out (outflows) = cash position (positive, negative or break-even)

What it lacks is any historical (longitudinal) information or in-depth analysis. However, a cash flow statement is a key building block of a cash flow forecast.

How to Read a Cash Flow Statement

income statement and balance sheet in a financial report

Your cash flow forecast: What it is

A cash flow forecast (cash flow projection) uses insights and analysis to anticipate how a business’ cash flow will perform over time. As the reporting tool for cash flow, a cash flow statement is foundational to cash flow forecasting.

A cash flow forecast helps you examine how key variables have performed in the past — in order to help you predict how they’ll behave in the future. Using operational cash flow as an example, forecasted cash flows help you delve into trends on how expenses like labor, utilities, materials compare with sales over a given month, quarter or year.

Businesses with volatile cash flow will sometimes perform cash forecasts on a weekly basis in order to assess their constantly changing cash flow position.

Cash Flow Basics — Key Concepts and Terms

Your cash flow forecast: What it tells you  

The phrase “over time” is key in defining the benefits of cash forecasting. By looking back and examining data from previous cash flow statements, you’re better able to identify:

  • Potential surpluses and deficits in your total cash flow.
  • When your incomes are highest and lowest.
  • When your expenses are highest and lowest.
  • The impact of the cycles in your accounts receivable and accounts payable.
  • How your debt levels and the costs of these debts are affecting your cash flow, how well you’re maximizing your current funding and your ability to qualify for further financing.

Knowing your current and long-term cash positions also lets you make more informed business decisions. If you’re planning on hiring, you’ll be able to predict if your business can handle the additional costs. The same is true for almost any growth initiatives, from research and development to expansion. And should you encounter a cash flow crisis, the more you know about what contributed to the shortfall will help you find the best way to recover.

Tools, like our cash flow forecast, help you take the information from your basic financial statements and make them easier to visualize. Spreadsheets are one thing, but charts and graphs give you complete picture that data points alone can’t provide. Your risk score, housed within the cash flow forecast, also gives you a reference how external lenders and vendors view your business in terms of financial risk.

Cash Flow Forecasting — What You Need to Know

The benefits of better cash flow

Businesses with a strong, stable cash flow are better able to seize growth opportunities and withstand unexpected expenses. The better your financial health, the more likely you are to secure more favorable terms with lenders and vendors as well. Not to mention, the simple peace of mind of knowing that everything’s under control.

In a perfect world, every business would be cash flow positive. But nothing’s ever black-and-white. This is why cash flow forecasting can also help a business solve cash flow problems by pinpointing problem areas in order to formulate solutions. Even businesses looking to rebuild credit benefit from cash flow forecasting. Especially, if you use your cash forecast to ensure that you’ve got the funds to schedule timely repayments.

main dashboard and ratios

Create a cash flow forecast — using your current financial data from your QuickBooks Online account.

All you have to do is register for PayPie, connect your account and run your report. Plus, there’s no charge for signing up or running your report.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels and Shutterstock.  

Trade Credit: How It Works for Buyers and Suppliers

trade credit main image

Having the cash on hand at any given time to finance major business operations is tricky. We’re particularly talking about inventory, raw materials, or supplies to drive operations. That’s why trade credit exists: To help you gather the cash needed to pay off those bills over time.

Because, yes, although you’d love to have thousands — or maybe hundreds of thousands — of dollars immediately available to pay your vendors as soon as you purchase goods, it’s unlikely that you do. Or, at least, that you can constantly do it that way. Again, this is why trade credit exists. Here’s how it works and how it affects both buyers and suppliers.

Know how much cash you have on hand.

Trade credit: Defined and explained

If you’ve ever heard someone use the phrase “net terms,” then you’ve heard of trade credit even if you didn’t know it by its other name.  (Luckily, a rose by any other name smells as sweet, right?)

In simplest terms, trade credit is a short-term financing agreement between a buyer and a supplier. The supplier extends credit to the buyer, allowing them a designated period of time after delivery of the product or service to pay the fee. Those “net terms” you’ve heard of are the period during which the vendor has agreed to extend credit. So, net 30 means 30 business days, net 60 means 60 business days, and so on.

Trade credit is also the easiest type of short-term financing to get as it doesn’t involve a formal application process. And, since 25% of small-to-medium business owners (SMEs) are denied financing from lenders due to poor earnings and cash flow, it’s an essential part of the trade ecosystem.

How accounts receivable affects cash flow

What is trade credit used for?

Trade credit is used to facilitate the purchase of large goods and service contracts. (Even smaller purchases, too, depending on the relationships in place with suppliers.) With trade credit, businesses can purchase what they need at once and stagger repayment across vendors.

Also, implemented intelligently on the part of the buyer, trade credit also gives businesses the flexibility to make sure that they will have enough money to cover all of their trade credit bills on time.

What kind of businesses use trade credit?

Lots, actually. Trade credit is a business-to-business (B2B) service. But it’s very well utilized across industries. Restaurant owners buy from their ingredient suppliers on net terms. Lawn care companies bill their homeowners using trade credit. Strategy consultants extend a line of trade credit to their clients.

With that in mind, though, a buyer doesn’t automatically get trade credit just because they want it. You’ll want to think about trade credit as a tool for building relationships between businesses — and, subsequently, building business credit with continued payment on time and in full. A supplier won’t extend a business a trade credit line unless they have solid trust that they’ll be recouping all of their money at the end of the time frame.

Invoice Payment Terms — 7 Key Concepts and Tips 

trade credit secondary image

Advantages of trade credit

For buyers:

  • More time to pay. It’s hard to come up with the money you need to pay for major purchases all at once. Trade credit extends your window of payment from COD (cash or collect on delivery) to the terms you and your supplier agree on.
  • Build business credit. Trade lines of credit help you establish business credit. Some major credit bureaus take trade credit into account when calculating business credit scores.
  • Potential discounts. Many suppliers will offer small discounts to incentivize buyers to pay before their due date. You might be able to save money if you can pay before your bill comes due.

For suppliers:

  • Open up more relationships. The vast majority of buyers rely on trade credit for large purchases. Offering this financing for buyers can open up new relationships and potentially larger purchases with existing ones.
  • Becoming a preferred supplier. Customers may favor you if they’re able to negotiate favorable trade credit terms with you that aren’t available through competitors.

How to make the most of every invoice you send.

Drawbacks of trade credit

For buyers:

  • Potential discount loss. This is more opportunity cost than anything. Still, if you wait to pay your invoice until its due date, you forego any potential discount the supplier might offer if you pay upfront in cash.
  • Relationship risk. If you aren’t able to pay on your bill for services rendered or goods received, you risk putting your relationship with your vendor in jeopardy.

For suppliers:

  • Risk of delinquency. When you extend trade credit, there’s no guarantee that you’ll get your payment on time — or at all. And although you’ll only extend trade credit to the customers you trust, you’re still taking a gamble on their business.
  • Discounting. In order to incentivize your customers to pay before their terms come due, you might have to offer some form of discounting for early payment. This will cut into your margins.
  • Uneven cash flow. The nature of trade credit means you don’t know when your customers will pay. This creates an inherently uneven, unpredictable cash flow. While you want to be flexible, you also want to set terms that favor your business as well.

Establishing trade credit with suppliers

As we mentioned briefly, you can’t just have trade credit simply because you want it. There’s a deep trust involved in establishing payment terms with a vendor. If they extend you financing, they need to feel secure that you’re going to come through with their cash if they front you what you’re buying.

How to establish a trade credit relationship

The good news is, unlike traditional short-term financing, you don’t have to apply for trade credit. The less-good news is that you’ll generally have to begin at square one with a new supplier. That means starting with COD — or even up-front payment, depending on how your vendor works. Then, you might graduate to deposit, installment, or other net terms. But that’ll depend on how quickly and how well you can provide to your supplier that you’re dependable and creditworthy.

Much like a business lender, the business on the other end of the trade credit line wants to mitigate their risk as much as possible. So, although they’re not formally underwriting you, they’ll be judicious about whether or not to extend you advance payment terms.

If a potential partner doesn’t know much about you, they might opt to pay to check your business credit score to see your history with business debt. (This is a service that many of the major credit bureaus provide.) This is just one reason why it’s important to establish trade credit relationships when you can and keep up on top of them once you have them. Proof of past positive relationships can go a long way in building future relationships.

That first one can be tough to get and take time — but it’s crucial to open doors down the line!

The 5 C’s of Business Credit Explained 

What happens if you don’t honor your trade credit agreement

Your suppliers offered you trade credit because they trusted you, right? Don’t lose that trust! But you will if you can’t come through on your payment.

Not only will you very likely lose your opportunity to work on delayed payment terms with your vendors, but some may never choose to work with you again. They also might influence others not to extend you trade financing — especially if you work in a tight-knit industry.

Worst case scenario: It’s possible that if you owe a large payment, your supplier could hire a lawyer and send a collections agent after you.

Remember that even if you plan to pay, albeit late, suppliers are depending on your money. They factor your on-time payment into their cash flow. Coming up short could affect how — and if — another business is able to pay other suppliers, lenders, or finance their own operating costs. That’s a cascading effect! If you have a down month and need more time to pay, let your supplier know as soon as possible.

Offering trade credit to customers

On the other side as a supplier, you’re taking a risk if you decide to offer financing. And it’s important to understand the risk: SMEs spend nearly 15 days a year chasing payment on outstanding invoices.

But, if you size your risk correctly, you could be opening up your customer base.

Understanding accounts receivable turnover.

Determining whether or not to extend trade credit

The first question to ask yourself: Do you have an existing relationship with this customer? Do you have a way to know if they have a good history with payment? If the answer is yes, you might begin by asking for a deposit or a portion of the invoice COD  and extend net terms for the remainder of the invoice. Then, with time and proven responsibility, you can move toward a full trade credit relationship.

If you don’t have any way to gauge a company’s history, you can also either check their business credit score to get of sense of how they’ve handled past debt. Alternately, you can ask for a trade credit reference from other vendors with whom they’ve worked.

Offering an early payment incentive

To incentivize faster and guaranteed payment, many suppliers choose to offer a cash discount. A common discount is 2/10, or 2% off the price of the invoice if paid in 10 days.

Yes, that technically cuts into your margins on your product or service. But having the cash in hand to be able to put back into operating costs or invest, and knowing you won’t be out that money later, is worth it for many businesses.

What to do if your customers don’t honor your trade credit agreement

This is the chance you take, of course. Before anything, you’ll want to send out a late payment reminder. Don’t assume the worst!

In the interim, you might want to look into a solution like invoice factoring. It’s meant for a situation just like this! With invoice factoring, you sell your unpaid invoice to a factor (lender) who’ll pay you a significant portion of the balance. Then, they’ll pursue the outstanding payment from your client, and pay you the remainder, minus their fee, once they collect. This helps a lot with cash flow!

How trade credit affects cash flow

You’ve likely figured out by now that there’s a very direct tie into trade credit and cash flow. That goes regardless of which side of the terms you’re on.

As a customer…

  • You’ll be able to plan your invoice payment based on your cash flow projections.
  • You don’t have to pay COD or pay for everything at once if you don’t have the cash on hand for it.
  • You can stagger payments across multiple trade credit lines based on available cash flow.
  • You can take advantage of discounts if you have the available liquidity and know that paying in full early won’t affect your working capital.

As a supplier…

  • You might introduce an element of unpredictability into your accruals depending on when your customers actually pay.
  • You introduce the possibility of late or non-payment after services are rendered or goods are delivered.
  • You might want to take advantage of invoice factoring to access cash tied up in trade credit. 

With this in mind, the most important thing you can do on both sides of the equation is have the best handle on your cash flow possible. The more you know about the cash you have on hand, the more you’ll understand whether or not you’re able to either extend trade credit or pay off your invoices. That means you need to be able to forecast and project your cash flow accurately — the more data, the better.

PayPie’s cash flow forecasting tool does just that, nearly down to the minute, by integrating with your accounting software to create an interactive and informative dashboard.

main dashboard and ratios

Signing up for PayPie is easy. Just create your free account, connect your business and run your cash flow forecast.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels. 

How to Make the Most Out of Every Invoice You Send

Making the most of invoices

Invoices are something you issue to your customers after conducting business. An invoice is a clear indication of the services you have rendered or a product you’ve supplied along with all the associated costs. Invoices are part of doing business and they keep both parties accountable for their commitments.

Having a steady stream of money (also known as cash flow) means your business can continue to fund its operations. If your invoices aren’t serving you well, the resulting cash flow gaps can literally spell doom and gloom. By implementing the right invoicing processes, you not only mitigate any cash flow concerns — but you can also secure greater customer loyalty.

Invoice necessities

Let’s look at what makes up the meat of the invoice — the basic necessities that your customer needs to know who sent the invoice and why. This includes:

  • The name of your business and your logo.
  • Your contact information — business name, address and contact information.
  • The recipient’s name, address and contact information.
  • The product(s) or service(s) for which the invoice was issued, along with prices.
  • Payment terms and conditions, payment deadlines and invoice creation date.

Now that the necessities have been covered, we’re not stopping there — that was the vanilla invoice. We’re here to elevate your invoicing and have every invoice you send generate a whole lot of additional benefit with minimal effort.

Read more about accounts receivable turnover.

invoice as a marketing tool infographic

3 Ways to tap into the marketing potential of your invoices

Many businesses, regardless of their size, underestimate the power that invoices possess. They’re often seen merely as receipts — yet they have powerful marketing potential that often goes unnoticed. Let’s face it, the people you do business with will encounter invoices that are produced and delivered by you. Leverage these nifty little sheets to secure consumer fidelity and even help attract new faces.

Take some time to revisit your invoices — assess the layout, format, and overall look of invoices being sent out to your customers.

1. Add incentives  

Don’t be basic with your invoice creation process and don’t be afraid to drop a few irresistible incentives on the sheet. What do I mean by incentives? Well, what would encourage you to do business again? Discount codes sound pretty enticing to me. What about referral codes to share with friends? Heck yes! Include them too, now your client has a reason to mention you to their friends and family — aside from your splendid quality and customer service of course. Having discount codes and referral options accompany an invoice is a surefire way to get customers coming back to you with friends in tow.

2. Promote new products

Now let’s assume you’re developing a new product. Guess what? You can promote it through your invoice too. The beautiful thing about an invoice is that people value them and inspect them carefully. All eyes are glued to this document, so why not take advantage of all the attention it manages to garner? Include a message or a notification within your invoice informing people of a new product launch or a sneak-peek into future product development. Get your customer excited about the future and any new offering you will have in store for them. This too can go hand-in-hand with the aforementioned promotional codes that may be included in the invoice.

3. Encourage feedback

Use your invoice as a means to encourage customers to give you feedback. This is a great way to further improve your business model and product for any future purchases, thus elevating the perception of your brand and developing social proof.

Keep in mind that customers are the reason for your existence, if it weren’t for them, you wouldn’t be here. Continue to improve the customer experience through a scrupulous feedback gathering process, which can be enhanced through the use of invoices. Include a contact number, or a website URL in your invoice that customers can use to share their feedback.

Invoicing and cash flow

Being able to effectively forecast your future financial situation is critical for any business. This information guides marketing or product development budgets, how you will proceed with expansion and let’s not forget your investors who may be looking to assess your future prospects.

By staying vigilant and organized throughout your invoicing process, you’ll have better information from which to build your cash flow forecasts. For instance, if you’ve set the right terms and your collections are working effectively, you’ll have a better turnover ratio. On the other hand, if your terms aren’t beneficial to your business, cash flow forecasting will help you pinpoint the issues.

Also, keep in mind who your business owes. You probably have obligations to reimburse vendors and various suppliers under strict deadlines, don’t overlook this important detail. Revert back to your accounts receivable and take note to see if your future expected cash flow meets or exceeds your own debts.

Use outstanding invoices to quickly access cash 

Lastly, I want to share something that some businesses — especially new ones —may not be aware of. What I am talking about here is invoice factoring. There may come a time when your business will need to access a sizeable sum of cash quickly, without actually having the necessary funds in hand. In these instances, your outstanding invoices can be converted into cash quickly through a process known as invoice factoring.

You don’t have to wait for your clients to muster up their debt before a deadline that could be a month or more down the road. You can sell off a portion of your accounts receivable to a third party (known as a factor) at a discounted rate. Accounts receivable factoring is typically used as a short-term financing and may be used in conjunction with other financing tools like loans, credit cards or a line of credit.

Stay vigilant of all your outstanding invoices. Some clients can be rather unruly and may not follow through with their financial obligation stifling your cash flow. A reliable factor can alleviate some of the financial woes and give you more breathing room while allowing your business to keep moving forward. (Plus, the factor often takes care of the collection process.)

Read more about invoice payment terms.

Wrapping it up

Often times invoices are seen as the most basic form for depicting a business transaction and nothing more. The good news is that invoices can become so much more and help garner attention and respect your business actually deserves.

Your marketing efforts along with business’ fiscal health can be elevated by carefully structuring your invoices and their delivery method. Now that you’re endowed with this knowledge, maybe the next time you create and send an invoice, you’ll fully realize the potential this document holds.

This guest post was provided by InvoiceBerry, smart invoicing for small businesses and freelancers.

To create cash flow forecasts that help you see patterns in your accounts receivable processes, create a free PayPie account and connect your accounting software.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pixels and InvoiceBerry. 

The Best Cash Flow Books for Business Owners

best cash flow books

Did you know that the average CEO reads a book a week? That’s 52 books a year. If you want to know more about cash flow, put some or all of these titles on your reading list.

The following books focus on the basics of cash flow monitoring, as well as some of the more esoteric concepts behind your company’s day-to-day finances. Our list of the best cash flow books runs the gamut — from barebones introductions all the way up to tips on tackling your company’s more confounding financial data.

But, even the best cash flow books can only go so far. In addition to your learnings, you’ll still need to apply your newly acquired acumen in the real world. PayPie’s cash flow forecasting tool helps you turn your financial data into meaningful cash flow metrics. (Another fact: SMEs who monitor cash flow on a monthly basis have an 80% survival rate.)

What’s covered in the best cash flow books

Let’s review a few cash flow basics before you load up your cart (virtual or real-life, depending on your preference). In short, cash flow is the sums of money that flow in and out of your business. Cash flow is a key indicator of an enterprise’s financial health. It also demonstrates, in real terms, whether or not your business is financially stable, able to pay its bills and can keep daily operations humming without major disruptions.

You’ll want your company to stay cash flow positive, with only a few exceptions. You’re cash flow positive if you have enough money to pay for your financial obligations without running out of money. If your business can’t pay off its debts, it is considered to be cash flow negative.

One of the only times you can expect to be cash flow negative (and not be in a potentially risky situation) is if you’re in the middle of a launch or an investment phase. This is usually the case for early-stage companies or those that are pre-revenue. (You would normally be prepared for a down period in either scenario.)

Like lists as much as you love books?
See our list of cash flow statistics,  cash flow sayings and 10 best businesses for cash flow.

The best cash flow books for novices

Every entrepreneur has to begin somewhere. Just because you’re not a financial whiz doesn’t mean that you can’t become one — or, the very least, learn enough about cash flow to keep your business humming. There’s a slew of books that are ideal for small business owners who are just learning the ropes of accounting and finance. These introductory cash flow books will give you a solid foundation by teaching you the basics.

cash flow for dummiesCash Flow for Dummies by John A Tracy and Tage Tracy

Cash Flow for Dummies offers exactly what you might expect from the title — a straightforward primer on the basics of cash flow. This book dives into the ins and outs of maximizing your company’s cash flow, cash management, and how these elements of your business affect its overall earnings. The authors spell out how to read cash flow statements as well as the best ways to analyze and monitor cash balances. It also covers other essential aspects of managing cash flow, including control methods for cash receipts, disbursements, and bank account reconciliation. And to round things out, the authors also show readers how to prevent fraud and waste, which can drain cash flow unexpectedly.

We recommend Cash Flow for Dummies for any newcomer to basic cash flow principles. This book not only teaches you the core components of any SME’s cash flow setup, but it also dives into the strategies and tactics that will help you make the most of your cash flow while avoiding potential pitfalls along the way.

Understanding Cash Flow by Franklin J. Plewa Jr. and George T. Friedlob

Plewa and Friedlob’s Understanding Cash Flow offers a succinct, approachable overview of how cash flow works, and what it means for your business. Although it’s a bit older than some of the other titles in this list, it’s one of the most meaningful books for cash flow novices.

This is due in part to the authors working under the assumption that you’ve likely heard the term “cash flow” in the past, but are probably unsure of what it truly means (and might even be too scared to look). Understanding Cash Flow provides a detailed overview of how cash flow management affects company earnings. It also discusses how to analyze cash balances and cash flow statements and how to prevent fraud.

This book covers the basics of cash flow for any nascent small business owner who wants to take control of this element of his or her business. The authors discuss topics in detail without getting overly technical, which makes the complex subject matter a little easier to swallow.

Accounting for the NumberphobicAccounting for the Numberphobic: A Survival Guide for Small Business Owners by Dawn Fotopulos

Fotopulos’ Accounting for the Numberphobic builds on the core concepts explained in Cash Flow for Dummies, providing an easy-to-read primer on everything you need to know about your company’s finances. This book provides explains why it’s important to take ownership of your company’s accounting and finance practices, as well as how. Each chapter provides real-world expertise on topics like net income statements, measuring and increasing cash flow, and how to identify the break-even point — which is when your business becomes self-sustaining.

Accounting for the Numberphobic is a great read for any business owner who loves building their business, but hates looking at numbers. The book breaks down the intimidating factors of financial management and helps you understand why and how your numbers require steadfast attention.

Small Business Cash FlowSmall Business Cash Flow: Strategies for Making Your Business a Financial Success by Denise O’Berry

The premise behind Small Business Cash Flow is that most entrepreneurs know that cash flow is an important part of their business’ financials, but may not know what it means or how it works. O’Berry covers the basics of cash flow management down to the very basics of choosing the right accountant, all the way up to budgeting and record-keeping. The book provides a great primer on small business financing, as well as the top-level issues concerning cash flow management.

This book is for you if you’ve ever had a question about your company’s finances that you were too afraid to ask. There’s no issue too big or too small within Small Business Cash Flow, as even the basic purpose of money within your business is given its own chapter. This resource is perfect for the budding entrepreneur — or even the financially inexperienced veteran.

More Reading: Cash Flow Basics — Key Concepts and Terms

Cash flow books that go beyond the basics

There are tons of great books out there for entrepreneurs who know about cash flow basics but may want to dig a little deeper into the best ways to manage their company’s financial future. Or, alternatively, fix existing cash flow problems that might plague their business.

Whether you’re sleuthing out a cash flow issue, or simply want to extend your financial know-how, here are a few books that can help. These titles will help you build on what you know through tangible facts, solutions, and tactics to increase cash flow.

Cash flow problem solverCash Flow Problem Solver: Common Problems and Practical Solutions by Bryan E. Milling

Cash Flow Problem Solver is designed to help business owners determine where their company’s cash flow issues stem from, and how they can solve these problems before it’s too late. This book focuses on the basic principles behind positive cash flow management, which incorporate a proactive approach to cash flow principles and a vigilant focus on keeping a company’s operations cash flow positive at all times. Milling offers valuable insights that business owners can refer to on a daily basis, or when cash flow issues arise.

This title offers more than a detailed examination of what cash flow means, and why it’s important for your business. Cash Flow Problem Solver goes tackles common cash flow issues directly, providing tangible insights into the most routine issues that might impact your company’s bottom line.

Cash is still kingCash is Still King by Keith Checkley

One of the most popular sayings about cash flow is “Cash is king.” Cash is Still King makes a compelling argument as to why. The author compiles nearly 10 years of cash flow training experience with leading business firms and provides his firsthand experience with the common cash-related issues that companies tackle. Checkley’s book is rife with case studies in how companies managed to turn around their cash flow issues, and why their methods succeeded.

Cash is Still King offers readers with real-world examples of when and how companies end up with cash flow crises. Better still, the book provides realistic solutions that SMEs can use to create their own rebound stories.

Finance for non financial mangersFinance for Nonfinancial Managers by Gene Siciliano

Finance for Nonfinancial Managers covers the basics of financial reports, cost accounting, as well as operational planning and budgeting through plain-spoken language for those of us who aren’t inherent financial mavens.

Siciliano provides the info you need to better understand balance sheets, cash flow statements, and income statements without getting overly complex. Additionally, this book covers the basics of cost accounting, which can help you determine which products and services help provide your company with the most money. This title also helps you draft operational plans and budgets, synthesizing the financial tools you’ve learned in order to help you make more informed business decisions.

Finance for Nonfinancial Managers empowers you with the essentials of business financials, without getting mired in complex topics and complicated language. You’ll learn how to keep tabs on your company’s money and financial health, even if that only means that conversations with your accountant become easier.

More Reading: How Cash Flow Consulting Helps Businesses

The best cash flow books for financial gurus

Entrepreneurial financeEntrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur by Steven Rogers and Roza E. Makonnen

If you’ve covered cash flow and triumphed over balance sheets, you might be ready to take on even bigger-picture topics and strategies. Entrepreneurial Finance offers tangible advice from top-tier business minds that can help you scale your business.

It provides effective methods for keeping solid fiscal control over expenses, along with tips on how to avoid the financial pitfalls. It also goes into valuing your company, raising debt and equity capital, and the best strategies for financing your growth.

Creative cash flow reportingCreative Cash Flow Reporting: Uncovering Sustainable Financial Performance by Charles W. Mulford and Eugene E. Comiskey

Creative Cash Flow Reporting isn’t a euphemism for fiddling with the books (which we would always advise against strongly). Rather, this book is about sniffing out the tricks and techniques commonly used to fudge financial numbers, or innocent errors that might result in you underreporting how much cash your company has in its coffers. Comiskey outlines methods for detecting cash flow issues — whether real or doctored — as well as methods for adjusting cash flow statements to yield better analysis of how your company earns and spends.

This book is a must-read for any entrepreneur with an advanced cash flow knowledge and a good handle on their business’ basic finances. Creative Cash Flow Reporting can help you take additional steps toward improving your financial records, and even help you better understand your company’s operating finances.

Understanding Balance SheetsUnderstanding Balance Sheets by George T. Friedlob and Franklin J. Plewa Jr.

Understanding Balance Sheets is the second book by Friedlob and Plewa on our list. This title builds on Understanding Cash Flow by drilling deeper into the basics of balance sheets and why they’re vital for understanding your company’s financial health. The authors dive into the major aspects of balance sheets and help business owners develop their own balance sheets. Better still, they provide an understanding of how constituent parts of a balance sheet — receivables, cash, inventory, long-lived assets, long-term debt, and equity — impact your company’s financial forecast.

If you’re interested in taking your financial knowledge to a new level, Understanding Balance Sheets is a great place to start. This book deepens your knowledge of company finances beyond cash flow, empowering smarter financial decisions down the road.

More Reading: 5 Stories Your Financial Statements Tell 

The plot thickens…

To really master your company’s financials, you’ll need to create a cash flow forecast using PayPie’s insights and analysis.

Another key metric included in this forecast dashboard is a proprietary risk score that shows you how your business is seen in the eyes of prospective lenders and business partners.

main dashboard and ratios

Signup is a breeze — simply create a PayPie account, connect your QuickBooks Online account, select your business and run your report.

PayPie currently integrates with QuickBooks Online, with further integrations planned for the future. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Stock photo via Pixels. Cash flow book thumbnails via Amazon. 

Traditional Term Loans: Understanding The Essentials

term loan main image

Whether or not you realize it, there’s a high likelihood that you know what a term loan is. Or at least understand the concept. (We’ve talked about them before here at PayPie.) Term loans are the most traditional type of business financing available, where you work with a lump sum of capital and repay it in fixed installments along the way.

Term loans are great products — but not for every use case or every business owner. There are, however, ways to know if and when you should apply, or if there’s a better alternative available.

How term loans work

With a business term loan, you work with a lender to obtain a lump sum of capital that you borrow for a predetermined amount of time. You work out terms with your lender that are contingent on your creditworthiness, business history, and the amount of capital you ask for. And, once approved, you receive all of the cash at once.

Every lender will want to know what you’re doing with the money before you get the green light. But some term loans have restrictions on what you can and can’t do with the money, while others don’t.

But, essentially, term loans are business loans in the most traditional sense that most are used to when they think of financing. You borrow money, and you repay it through fixed payments, with interest, until your set term is up.

Short- and long-term business loans

Term loans come in a few flavors, so to speak. Short- and long-term business loans differ in — you guessed it — their term (how long you have) to pay back the money.

With short-term loans, you’ll generally have faster access to capital with shorter approval processes and less stringent requirements for qualification. The tradeoff is that the terms are less favorable. That means a higher interest rate and a shorter period by which you’ll need to pay back the cash. A short-term loan is generally a loan that lasts less than a year, though they can sometimes extend to around 18 months. Repayment on short-term loans is also usually daily or weekly.

With medium- or long-term loans, the process slows down. As you’d expect, these have longer repayment periods than those of their shorter counterparts, sometimes by several years. They often lower interest rates, too.

As a result, though, these loans only go out to more qualified borrowers, and the underwriting process takes longer. After all, a bank or alternative lender doesn’t want you to have their money for years if you’re not going to be responsible with it. On these term loans, you’ll generally have monthly repayments.

How Cash Flow Forecasting Maximizes Business Funding 

business term loan secondary image

Term loans vs. other types of business loans

Although the most traditional type of business financing, term loans aren’t the only kind, of course. These are a few common alternatives and their most relevant uses:

  • Business line of credit: Instead of a lump sum deposited into your bank account, a business line of credit works as a sort of hybrid between a credit card cash advance and a term loan. You’ll work with a lender to get approved for a sum, but you only use what you need — and only pay interest on what you draw. It’s a great solution for many business owners who want access to fast capital, but don’t necessarily want to have a large interest payment looming over their heads.
  • Invoice factoring: An expensive short-term loan isn’t usually the best solution for an entrepreneur with liquidity issues. Invoice factoring lets you sell unpaid invoices to lenders (factors) who’ll pay you a percentage of the invoice, work with the vendor to collect the balance and return the rest to you, minus interest and fees, when the balance is paid. It’s an excellent alternative for capital tied up in trade credit, and generally more cost effective than other types of shorter-term financing.
  • Equipment financing: If you don’t need working capital, and are rather looking to finance a specific purchase of gear for your business, you should consider equipment financing. As what’s called a “self-collateralizing” loan, equipment financing uses the equipment funded with the money you borrow to secure the loan. For that reason, some borrowers with less-than-perfect credit can obtain this type of business financing.

The 5 C’s of Business Credit Explained 

The best uses for a term loan

You can seek a term loan to finance a lot of different scenarios over the life of your business.

For one, a term loan is a good source of working capital. In other words, you’d borrow from a lender in order to have a source of money to spend freely on general day-to-day operating costs (as opposed to directly investing into an asset). If business owners are in a cash pinch, it’s fairly common to seek out short-term financing in order to supplement their cash flow.

Times when short-term loans make sense include:

  • Making payroll or paying taxes.
  • Funding a marketing campaign.
  • Opening up a new location or expanding into a new market.
  • Financing the creation of a new product or service.
  • Covering a one-time expense, like an emergency repair.

Longer-term loans are also good for specific investments or asset purchases. You can also use a term loan to refinance existing debt — meaning if you have an existing loan and you’re in a better financial position with better credit history, you can work with a lender to refinance into a less expensive product with more favorable terms.

6 Ways Business Funding is Used by SMEs

And when you wouldn’t want to apply for a term loan

Taking on debt is never preferable, of course. But if you’re going to apply for business financing, the benefit of a term loan is its predictability. You apply for a fixed amount of money. And, when you work with a lender, you’ll know up front how much you’ll owe each month, plus how much the loan will cost you by the end in terms of its interest plus principal.

If you’re not entirely certain that your investment will yield results, or you’re in a somewhat precarious financial position, taking on a term loan might not be advantageous. There are other financing instruments, like those we mentioned above, that could be a better fit for you.

Additionally, term loans almost always require collateral. You want to make certain that you don’t put your business in a situation in which you’re taking on debt that you aren’t sure you can afford. That puts your collateralized assets at high risk — and could ultimately jeopardize your entire company, especially if your lender requires a blanket lien on your tangible assets.

How to apply for a business term loan

If a term loan is a fit for your business’s needs, you’ll need to work with a business lender to obtain financing. You have a few options: You can go directly to a bank or credit union, or work with an online lender (alternative lender).

A bit of context is helpful before we go further, though. Small business lending took a big hit during the 2008 financial crisis. And although Main Street lending rehabilitation was meant to be a  mandatory provision within the government’s Troubled Asset Relief Program (TARP) bailout, rehab help never quite made it into practice. Ten years later, the vast majority of American small business owners still find it very difficult to get loans from institutional lenders like banks. They can be picky with their candidates — and they are.

While that little recap covered the United States, SMEs around the world face similar challenges accessing funds through institutional lenders. Worldwide, there’s an unmet funding need of $2.1 – 2.5 trillion.

See our comprehensive list of cash flow statistics.

Where to look for a term loan

Let’s start with those bank loans. If you have several years in business, strong and consistent revenues with a consistent track record, and excellent credit, you could be a good candidate for a bank loan. As a new business, you’ll definitely need to look elsewhere. Because banks don’t lend out much money to small business owners, they can be choosy — and they’ll choose the least risky candidates. To them, that means ones with proven dependability with debt. An existing relationship with a bank is often helpful, too.

Alternatively, online lending has emerged in recent years as a response to the lack of available capital for small business owners. Qualifications won’t be as stringent with most online lenders, but their terms will be slightly less favorable as a result. You can apply for term loans directly at lenders’ websites, or through online loan marketplaces, who can submit your information to multiple lenders at once.

Recurring Revenue — 5 Proven Models

What lenders look for in a qualified term loan applicant

The most important thing to remember when trying to understand business loan application requirements is the lender’s job. It’s all about mitigating their risk.

There’s no way to conjure the future in a crystal ball to know whether or not they’re going to get back their money — that’s impossible. So, when evaluating your application, they have to make the decision based on your odds of paying them back. That’s all derived from your track record. And, since they haven’t known you for years and can’t sample just how good your product is or meet you to understand just how trustworthy you are, all they can judge are things including:

  • Financial statements, including your cash flow statement, balance sheet, and income statement.
  • Recent business bank account statements.
  • Credit rating — both personal and business.
  • Tax returns — both personal and business.

As with all business loans, requirements for term loans will vary from lender to lender.

As we mentioned before, banks and credit unions will require very strong financials. You’ll nee high credit scores (generally very good to excellent) as well as more than a couple of years in business under your belt with good earnings so they’ll have financials to analyze. Online lenders might require slightly less solid credit or revenue numbers and a little less time in business.

That said, term loans aren’t the best options around for new businesses. Most lenders require some established financial track record for your business to qualify. Startups simply don’t have that.

5 Stories Your Financial Statements Tell 

The relationship between term loans and cash flow

There’s a deep connection between term loans and your cash flow. It starts before you even apply for one of these financing instruments, and continues after you’re approved.

Why lenders care about cash flow

Cash flow is an extremely important metric for small business lenders and loan underwriters. It’s a make-or-break factor that’ll determine whether or not you get approved for your loan.

And if you think about it, that makes sense — your cash flow reflects the money you have available to cover your loan payments. Lenders will evaluate your cash flow statement to make sure you consistently have enough cash on hand to cover both your operating expenses and your debt.

Before you apply for a small business loan, you’ll want to have been keeping a detailed cash flow forecast. It’s one of the only dependable ways to know if you’re in a position to take on the financing you think you are. In other words, see what lenders see — don’t be surprised!

Reporting, cash flow and business financial health

Where you’ll see your loan payments reflected

Got approved for a term loan? Great! Make sure you know where it’s showing up so you make sure you do make those loan payments and don’t fall behind. And, as we’re sure you’re unsurprised, your financing will appear on your cash flow statement, too.

What’s called your cash flow from financing activities (CFF) encompasses these outflows. At PayPie, we recommend running a cash flow forecast (like the one below) every month so you can see how your business’s CFF is affecting you.

main dashboard and ratios

How to improve your cash flow position

No matter where you are in the term loan process, make sure you have your cash flow processes zipped up tight. An in-depth cash flow forecasting tool will help you on either end.

  • If you haven’t yet applied for a term loan — understanding the trends in your business and creating a forecast will allow you to get your finances in the best possible position for approval. And to get better terms for a less expensive loan.
  • If you’re ready to apply — have as many insights into your cash flow as possible so you never miss a payment — and you know as fast as possible if you’re going to come upon a cash flow gap.

Spot risk now, thank yourself later. PayPie’s insights and analysis also provide you with a risk score, based on numerous data points, that shows you how creditworthy potential lenders and business partners see you.

Signing up for PayPie is easy. Just create your free account, connect your business and run your forecast.

PayPie is currently compatible with QuickBooks online, and more integrations are in the works.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.

Free Cash Flow: A Deeper Look

Free cash flow change jar

At PayPie, we often talk about how cash flow is the best indicator of your business’s financial health. (And we truly mean often.) But there’s a metric within the bigger umbrella of cash flow that drills down on your survival odds as a company: Free cash flow.

Free cash flow lets your business really see what kind of cash your company has available to work with after it pays for operations and capital expenditures. It’s a bit less straightforward number than just looking at an income statement. But, if you do the legwork, like running regular cash flow forecasts using our insights and analysis, you’ll have an invaluable perspective on whether your business has the runway to invest — and the potential to grow.

Free cash flow defined

Most simply, free cash flow is the remaining portion of your business’s cash flow that you can safely access after the necessary expenses are paid for. Most often, it’s mentioned into context what you can “distribute.” But as a small business owner, you don’t need shareholders for that to be relevant.

Distributions include payouts to equity holders (including yourself as the proprietor of a business), but also those who hold debt (like any business lenders or other debtors), and any investors if that’s relevant for you, too.

Importantly, free cash flow is a short-term metric.

How to calculate free cash flow

Grab your most recent cash flow statement. There are a few different ways to calculate free cash flow, but the most straightforward among them is: 

Net Operating Cash Flow – Capital Expenditure = Free Cash Flow

Wherein operating cash flow (OCF) means:

  • Cash you make from business as usual, minus your long-term investments and taxes.
  • OCF takes into account depreciation expense by adding it back in.
  • You can find your OCF number on your cash flow statement.

Wherein capital expenditures (Capex) means:

  • Cash you’ve spent on capitalized fixed assets, including expanding, upgrading, or maintaining your systems, equipment, space, etc. for business
  • Capex takes into account depreciation expense by adding it back in
  • You can find your Capex number on your cash flow statement in the “investing activities” line

Read More: An Overview of Cash Flow Basics 

analyzing cash flow and free cash flow

How free cash flow differs from net income

If this sounds a bit like your net income, you’re not off base — but free cash flow has an important difference. Your net income takes into account depreciation. (The free cash flow formula adds depreciation back in, as you can see reflected above.)

For instance, say you make a big purchase on a commercial oven for your organic granola company. But you have to pay for it all up front. Although your net income, which you pull from your income statement, will give you one number that factors in depreciation, your free cash flow will indicate a different total. Since your free cash flow gives you a snapshot of the short term, you’ll see a more constrained cash flow number because you paid in a lump sum.

Depreciation is set up within the mechanisms of accounting by design to lessen the blow of a big asset purchase. (The IRS’s term for this deduction is “cost recovery.”) On the other hand, free cash flow’s this-very-second approach to your spending makes sure your costs are recorded as they happen — that’s why depreciation is handled differently. In short, with cash flow, you want to see how that big expenditure affects your bottom line ASAP.

More Tips: The Difference Between Cash Flow and Profit 

What your company’s free cash flow can tell you

Free cash flow is meant to be a short-term metric — and it is. You can learn a lot about your financial solvency as a company, both the now and future, if you contextualize your numbers correctly.

Free cash flow in the short term

Calculated once, your free cash flow gives you a pretty solid sense of your business’s true liquidity or ability to meet its current and near-term financial obligations. And that’s important. If you’re planning to distribute earnings or wages (including to yourself — an entrepreneur can only eat so much ramen). You also need to be able to do so knowing that it won’t happen at the cost of keeping the lights on.

Plus, if you have outstanding business loans — or even business credit card bills — understanding what you’re able to siphon off your cash reserves is essential. Especially if you have something like a business line of credit, wherein you have, say, a six-month window to pay back what you borrowed. Knowing you have the cash to pay back your lender now means you don’t have to worry about extra fees, penalties, or interest.

Free cash flow in the long term

As with most financial metrics — and data in general — the more free cash flow calculations you have, the better. If you see an upward trend in your company’s free cash flow, it’s a strong hint toward growth. It also gives you the opportunity to invest and reinvest in your company.

Since no one number tells a complete story, you’d have to dig into P&Ls and balance sheets to figure out what’s going right. Maybe you’re doing a good job at keeping your costs low as you’re able to increase your prices relative to market competitors. Maybe you’re expanding your customer base and lowering your customer acquisition cost (CAC) in the process. Whatever you’re doing, consistently increasing free cash flow generally indicates positive financial health.

On the other hand, a downward trend in free cash flow over a longer period of time will be able to raise your red flag. Why are you experiencing an earnings decline? Are you managing your assets efficiently and investing the right way? (And do you need help turning things around?)

Read More: The Stories Your Financial Statements Tell 

Why free cash flow matters

If we asked you, How’s your business doing? You’d have one answer to the question. If we asked an outside evaluator to come in, thumb through your exact same financial statements, and respond to the prompt, they’d very likely have something different to say. It has nothing to do with you. Rather, there are lots of ways you can read and interpret the stories your financial statements tell.

Cash flow is already among the least gray financial metrics to interpret. Your cash position paints a straightforward picture — either you’re cash flow positive or cash flow negative. (And the more work you do creating cash flow forecasts with insights from PayPie, the quicker you can make adjustments so the latter never happens.)

But even within cash flow, there’s something called a cash “smoothing” effect which can change the accuracy of your cash reporting. Some businesses use accrual basis accounting (versus cash basis), which reports and records both revenues and expenses as they happen, not when they’re received or incurred. That can sometimes cause a less accurate representation of their short-term cash. This is that smoothing, which essentially spreads (aka smooths) this cash data out over a longer period of time.

The numbers your accounting data provides is still entirely accurate in terms of net income — don’t worry. But free cash flow takes into account that smoothing and attempts to mitigate it. As a result, it’s harder to manipulate.

Hence, free cash flow is an even more precise way to get a sense of a business’s available cash. (It’s even a favorite metric for investors evaluating Wall Street securities, so you’ll be in good company using it.)

Gathering as much cash flow data as possible

If you research more about free cash flow, you’ll find there are quite a few more ways to calculate it and apply it to corporate finance. We’ll advise you not to worry about the others as a small business owner. (They’re a bit more in the weeds, geared toward huge public companies with lots of shareholders.) Just the general overview of free cash flow will be enough for you to understand more about your business’s assets at a deeper level.

That said, we did say more data is better, right? And we stand by it. Because there are many cash flow insights that are immensely helpful for you to make better data-based decisions every day as a business owner.

PayPie’s cash flow forecasting tools provide the deep, nearly up-to-the-minute numbers to help you make the best calls for your company by pulling your latest financial information directly from your accounting software.

main dashboard and ratios

Signing up is easy, and QuickBooks Online users can connect easily connect their businesses. (Not a QBO user? More integrations are on the way, too.)

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels. 

How Cash Flow Forecasting Maximizes Business Funding

Cash Flow Forecast Increasing Focus

You’ve probably considered business financing to help fund a new project or fulfill large orders. However, you might not know how important cash flow forecasting is in the approval process.

The fact is: Cash flow forecasting makes a huge difference to lenders. The more stable your business appears in the present and future, the more likely you are to get approved.

Getting a financing comes down to looking like a solid candidate in the eyes of your lending partner — the safer (less risky) your company appears, the more attractive you are as an investment.

Cash flow forecasting, like the kind offered by PayPie, gives prospective lenders a glimpse into what kind of operating capital your company has on hand and will have in the future. This demonstrates your ability to afford loan repayments, as well as the longer-term solvency of your business.

What cash flow forecasting helps you achieve

Before we dive into how cash flow forecasting maximizes business funding, let’s get into the details of how cash flow forecasting works. A cash flow forecast uses your current cash flow numbers to pinpoint strengths and weaknesses. When produced at regular intervals, such as each month, cash flow forecasts help you better predict your company’s future performance.

1. It pulls together metrics from your main financial statements

Using financial information from your income statement, balance sheet and cash flow statement, cash flow forecasting, like one created using PayPie,  helps you get the full picture of your finances. It does so by analyzing these numbers and providing a highly visual, easily understood report containing relevant ratios, charts and graphs.

2. It helps you measure and set benchmarks

If you’ve set benchmarks based on previous cash flow forecasts or through your cash flow budget, each new forecast you create gives you valuable insights into how well your company performed against these benchmarks. Cash flow forecasting can also help you fine-tune your benchmarks or set entirely new ones.

3. It tells you how much financing you can afford

Another pattern or trend that cash flow forecasting helps you visualize is where you stand in terms of financing. It can tell you how well your managing existing repayments. And if you need or plan to borrow additional funds, forecasting shows you how much new financing you can afford.

Read More: Essential Cash Flow Basics 

learning from cash flow forecasting

How cash flow forecasting helps you determine which business financing option you need

Cash flow forecasting doesn’t just help entrepreneurs visualize how money is moving in and out of their businesses. It also helps determine what kind of business funding you need in order to reach your goals.

Small business financing products are not created equal — some, such as a business line of credit, are better suited toward recurring situations in which you might need extra capital. Others, such as a working capital loan, provide companies with a one-time payment to help pay for general expenses across the entire business.

If getting funds quickly is your primary cash flow issue, invoice factoring.  provides you with an advance against the total of an outstanding invoice, giving you a lump sum in a matter of days. (If not faster in some instances.) 

By helping you pick the financing that fits your needs, a good cash flow forecast can even save you money. By assessing where your financing gaps are, you only borrow what you need. This helps you save money in the long term by not paying interest on amounts you don’t need or avoiding penalties from missed payments or misaligned products.

Read More: Cash Flow Forecasting — What You Need to Know

How cash flow forecasting affects the application process

Your cash flow forecast will also be of interest to your lending partner. For them, financing is all about risk. The more proof you have that you can afford to repay debts, the less risky your company appears. Good cash flow management signals to lenders that you’re able to assume the costs of repayment. This, in turn, demonstrates that your future financials can withstand this extra financial burden throughout the payback period.

Lenders also look at your 5 C’s of Credit when evaluating your application, and your cash flow forecast can go a long way in making these criteria more appealing. The 5 C’s of Credit are:

  1. Character: Your personal and professional credit history (past and present debts), as well as the personal profiles of you and your co-signers (your professional history, accomplishments, or other testaments as to why you’re creditworthy).
  2. Capacity: Your company’s ability to pay back the amount of the loan in question. Lenders want to see if your cash flow can support the additional debt and expenses associated with your financing.
  3. Capital: The amount of money that business owners have invested in their own company. Lenders like to see that entrepreneurs have put some skin in the game themselves before they provide you with cash.
  4. Collateral: What businesses can offer their lender in the event that they’re no longer able to pay back their loan. Collateral can consist of liquid assets or business equipment.
  5. Conditions: How borrowers intend to use their loans. For example, whether they’re using the loan to pay for raw materials or a new marketing campaign.

Cash flow forecasts impact several of your company’s 5 C’s — particularly your capacity to pay back your loan on time and without complications. They also reflect the collateral you can provide and the conditions for which you’re seeking the loan in the first place.

Read our full article on the 5 C’s of Business Credit

What else lenders look for in a cash flow forecast

Cash flow forecasts are akin to going under the hood of your company’s financial vehicle. They let lenders take a look at to review your one-off and recurring expenses, your income sources, your expectations for future financial operations, and whether or not your forecasting model is correct. In particular, lenders look at your cash flow forecast for:

  1. Future sales: Banks want to know about recurring revenue sources, as this demonstrates that your company is sustainable over time.
  2. Invoice payment timing: The timing of your accounts receivables and payables matters to lenders too, as it influences your company’s cash flow on an ongoing basis.
  3. Business costs: Whether or not your company has overhead issues also goes a long way in the loan decision-making process. Banks want to see how you’re spending your money, and whether or not your expenses are sustainable.
  4. Operational health: Cash flow forecasts demonstrate your company’s operating health. Banks want to know if you’re operating with a baseline level of success before making an investment. After all, few people want to lend to folks who can’t pay them back.
  5. Historical performance: As the old saying goes, history repeats itself. Your previous financial performance provides a benchmark for future activity. It also reflects whether or not you experience cyclical downturns or periods of financial instability.

There are other means by which lenders can get details on the aforementioned points. However, cash flow forecasts collate them into one document, which makes it easier to assess whether or not your business is as creditworthy as it appears in your application.

How to create a cash flow forecast

The best way to prepare an accurate cash flow forecast to maximize business funding is through PayPie’s cash flow forecasting tool. Our proprietary risk score, built into your forecast, also gives you insight into what your company’s credit looks like in near-real-time.

main dashboard and ratios

Just create your PayPie account and connect your business. QuickBooks Online users can start right now. And the entire process doesn’t cost a single dime.

PayPie integrates with QuickBooks Online. Other collaborations are in the works. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels and the PayPie Cash Flow Dashboard. 

Cash Flow Budget: Why it Matters for Good Business

Cash Flow Budget Main Image

In the words of Ralph Waldo Emerson, “Money often costs too much.” At PayPie, we heartily agree: Cash flow is the best indicator of your business’s financial health and if you don’t watch it carefully, the price can be steep.

Having as many insights as possible about how cash is going into and out of your business is crucial to understanding both the short- and long-term odds of survival. Putting together a cash flow budget it part of that.

A cash flow budget — or cash budget, for short — is different than a cash flow statement. It’s luckily simpler to put together, but just as necessary to understand your runway.

A cash flow budget explained

At its simplest, a cash budget lets a business understand whether or not it has enough net working capital to operate during a fixed window of time. Because you’re assessing liquidity for operational solvency, businesses generally perform cash flow budgeting every month. (Quarterly can work, too, though PayPie recommends sticking with monthly assessments to get the best data you can.)

To calculate your cash flow budget, you’ll look at your estimated cash inflows and outflows over the period of your choosing. That’ll include what you forecast you’ll spend on products or services and operating expenses, plus what you expect to make (and actually get paid out).

If your sources of cash exceed your uses, you’ll have a positive cash position. Vice versa, you’ll be in a negative cash position. You’ll also be able to see your estimated cash position at the beginning of your next cash flow budget period (depending on how often you keep them).

cash flow budget piggy bank

Cash flow budget ≠ cash flow statement

A cash flow budget might sound similar to a cash flow statement, but it’s definitely not. That’s an entirely separate document.

Your cash flow statement is an essential accounting document that you’ll need to keep alongside your cash budget. Part of the trifecta of most important financial statements, your cash flow statement — or statement of cash flows — is a more complex, formal document. It also pulls from your other financial statements, so if there’s a substantial change to your income statement, it’ll affect your cash flow statement as well.

As cash flow is the lifeblood of your business, you need to keep your cash flow statement as current as possible. A best practice is to update it each month before running your cash flow forecast. This way you can ensure that the data in your forecast is up to date.

More Tips: How to Read a Cash Flow Statement

Where your cash flow budget fits into the big picture

Your cash budget gives you a sense of your short-term operations. Your cash flow statement, on the other hand, is taking a look at your cash solvency over a longer duration. You can think of your cash budget as a management tool where you’re watching your costs, supplementing the overarching formal statement of cash flows.

Only together will your company have the insights it needs to make the right decisions about your cash flow and the future of your business.

Read More: A Real-World Cash Flow Story 

Do you need to make adjustments to your overall budgets?

That’s what cash flow budgeting can tell you when used in tandem with your cash flow statement. (Plus, adding cash flow forecasting to the mix gives you just one more piece of the picture, helping you track patterns in your data, like whether your accounts receivable is out of sync with your accounts payable, for instance.)

Practical ways to use a cash flow budget

Let’s say you run a company that manufactures and sells contemporary rugs. You’d use your cash flow documents — statement, budget, and forecast — to keep track of your operations.

  • You cash flow statement will serve as your foundation to show how many synthetic rugs you’ve sold, how much it cost you to make them, and during which period of time this cash came in or went out.
  • Your cash flow forecast will be your resource to evaluate and determine your cash trends, like when your margins are synthetic rugs are highest.
  • Your cash flow budget will help you manage short-term costs, especially within operations.

These documents will all inform each other. For instance, if you understand your margins from your cash flow forecast, you’ll get insight into the things that affect your cost of goods within your cash budget. Using them together, you’ll be able to optimize your cash flow.

How to create a cash budget

In order to put together a thorough cash flow budget, you’ll need to gather information on your projected inflows and outflows. Most simply, you’ll need a topline on your receivables and expenditures to calculate your net cash flow.

Here’s a basic cash flow budget template to get you started:

Part I: Cash outflows

  • Operational
    • Supplies
    • Marketing and sales
    • Taxes
    • Payroll
    • Rent or property payments
    • Misc fixed expenses
    • Accounts payable
  • Investment
    • Asset purchases
  • Financing
    • Loan payments
    • Other short-term or installment payments
  • Misc expenditures

Part II: Cash Inflows

  • Beginning cash balance
    • Accounts receivable
  • Business revenues 
    • Asset sales
  • Misc income
    • Claims
    • Rebates
    • Shareholder equity (FYI: this only applies if you’re incorporated with shareholders)

Part I —Part II = Net Cash Flow

Note that this is only an example. Due to the nature of your business, you might be adding many more — or fewer — line items. But the point here is to show the kind of elements that comprise your cash inflows and outflows. This number will also give you a starting point for your next month.

What’s also important to note is how net terms (also known as trade credit) can have a significant impact on your cash flow budgeting. Since your cash budget is measuring the short-term, and you might be either extending or paying on net terms of 30, 60, 90, or even 120 days, your cash flow can be significantly affected when these invoices are either paid or due, respectively. Especially if they’re broken up into deposits and collection on delivery (COD).

That’s one of the reasons keeping a monthly cash flow forecast, along with a longer-view cash flow statement, is necessary.

More Tips: Common Invoice Payment Terms 

How your business can use a cash flow budget

A cash flow budget is yet another financial document. So, if you have your stuff together, you don’t need to do it, right? Well, if you 100% want to stay in business, we’d really, really strongly advise that you do.

More seriously, though, without detailed insights about your cash flow management, you won’t be able to know what changes to make to your cost centers in order to keep the doors open. The more data you have about your financial position, the better. And that’s what a cash flow budget provides you.

Make the right adjustments

For instance, say you go along with PayPie’s advice to do your cash flow forecasting for the month. (Good idea.)

Perhaps, after running the numbers, you end up with a projecting a negative cash position. That’s not great news, no. But it does empower you to do what you need to do to obtain the capital you need. Maybe that’s free up capital tied up in trade credit with invoice factoring or apply for a business line of credit.

Short-term cash flow budgeting also allows you to understand your cost centers more intimately. As a business owners working to better manage your net cash flow, you’ll be able to focus in on where you’re spending monthly and why. Is your cost of goods sold (COGS) rising faster than expected because of market conditions, or something else? Do you maybe have a larger buffer than your expected to be able to bring on extra help?

Read More: How Cash Flow Consulting Helps Businesses 

Short-term cash projections help with a long-term strategy

Smart entrepreneurs will also create cash flow budgets for several months in advance using projections for future cash flow. This’ll let you be prepared for any future issues — and spot cash flow gaps. The sooner you can see where your business might come up short, the faster you can act to mitigate issues so they never arise.

In order to have the most detailed data you can to create highly detailed cash budgets, you’ll need cash flow forecasting tools available. PayPie provides the insights entrepreneurs need to prepare themselves for every cash flow scenario, and take out the guesswork involved in making ends meet.

main dashboard and ratios

Signing up for PayPie is easy. Just create your free account, connect your business and run your forecast. 

Paypie is currently compatible with QuickBooks online, and more integrations are in the works. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels. 

Small Business Cash Flow Statistics: The List to End All Lists

small business cash flow statistics

Cash is king. Cash flow is one of the top small business killers. Money makes the world go round. You’ve heard it all. But what are the current cash flow statistics and trends to back this up?

At PayPie, we know how much foresight matters to your cash flow and overall financial health. Having the right facts at hand makes you better informed and prepared, regardless of the situation. For all the fact hounds out there, here’s our end-all-be-all list of small business cash flow statistics and trends:

There are more small businesses than any other kind of business

When you look at the numbers, it’s not just size, it’s quantity. Most businesses — anywhere in the world — are small to medium-sized enterprises (SMEs).

  • SMEs represent 99.9% of all US businesses.
  • 97.9% of all Canadian businesses are SMEs.
  • SMEs also represent 99% of all businesses worldwide.

Small business cash flow statistics and facts

If your SME struggles with cash flow, you’re not alone. Cash flow is a major concern. But it doesn’t have to be the enemy. This is why we’re committed to providing the knowledge and solutions you need to take control.

  • SMEs live and die by their operating cash flow.
  • Small businesses of all sizes consider cash flow one of their top 5 challenges.
  • Among failed SMEs, 60% cited cash flow as a cause.
  • For every $1 lent to small businesses, sales of these borrowers increased by $2.31.
  • 10 of the best businesses for cash flow include franchises, finance and insurance, health care and social assistance, home-based businesses, niche restaurants, real estate rental and leasing, retainer-based professional businesses, regulated industries, software as a service (SaaS) and service-based industries.

Read More: How to Read a Cash Flow Statement

Benchmark reports on small business cash flow

Because cash flow is so crucial to SMEs, it’s the subject of industry research and studies. The following are some of the most recent reports containing small business cash flow statistics. Thank you to all the organizations who put these together. Research is hard work and it’s even more difficult to do it well.

2017 C2F0 Working Capital Outlook Survey
(This SCORE article also summarizes the survey.)

Three-quarters of SMEs need more cash:

  • 37% of U.S. SMEs said their need for liquidity increased significantly.
  • 34% said it increased slightly.

How SMEs would use additional cash flow:

  • 33% would purchase more inventory or equipment.
  • 28% would expand operations, such as exporting to new markets or opening new locations.
  • 16% would use it to meet current obligations.
  • 10% would invest in employees through hiring, wages and benefits.
  • 9% would put the funds into R&D.
  • 4% would create contingency plans to deal with unexpected events.

SMEs and access to funding:

  • A majority said that access to traditional and alternative funding was easier.
  • There was a 40% increase in the number of SMEs using business financing.
  • 1 in 5 SMEs face difficulties in borrowing from traditional lenders.
    • 30% of SMEs feel that high interest rates keep them from using various forms of financing.
    • 16% say time-consuming and rigid processes keep them from funding.
    • Global median interest rates are 50% higher for SME loans.
  • Alternative sources of funding, like invoice factoring and other online options, will be critical to meeting the needs of SMEs.
    • Globally, there’s an unmet credit need of $2.1 – 2.5 trillion.
    • There is equal concern for both long-term and short-term funding.
    • By 2020, alternative lenders will have a 20.7% of the US small business lending market.
    • 82% of SMEs are likely or very likely to try new sources of funding.

2016 JPMorgan Chase Report
(Based on info from 600,000 SMEs.)

  • Most SMEs only have enough cash flow to cover 27 days of expenses.
  • The top quarter of SMEs only has two months of reserves.
  • As a median, SMEs have $374 in average daily cash outflows and $381 average daily cash inflows of $381.
    • While this varies by industry, the median shows only a $7 difference between inflows and outflows. (This is detailed further in the SCORE infographic included in this post.)
  • The average daily cash balance is $12,100.
  • Labor-intensive or low-wage industries have fewer cash buffer days than capital-intensive or high-wage industries.

2016 SCORE Infographic — Small Business, Credit, Capital and Cash Flow (References the JPMorgan Chase report, specifically the daily income averages.)

Cash flow, costs, the availability of credit and building revenue are all top challenges for SMEs.

It’s harder for SMEs to get approval for business financing:

  • 38% of businesses with revenue less than $5 million are approved for bank loans.
  • 70% of businesses with revenue between $5 and 100 million and are approved for bank loans.

Why SMEs are turned down for business funding:

  • 25% are due to poor earnings and cash flow.
  • 21% are due to the size of the business.
  • 19% are due to insufficient operating history (new businesses).
    • 52% of small businesses are less than 10 years old.
    • 33% are less than 5 years old.
  • 18% are due to poor credit.

SMEs are better at credit management than larger firms:

  • On average, SMEs credit scores are 48 points higher.
  • SMEs are less likely to have revolving bank cards that are 90 days past due.

Smaller banks approve more loans for SMEs

  • 60% of businesses with revenue less than $100K are approved by small banks
  • 69% of businesses with revenue between $100K to $1M are approved by small banks
  • 88% of businesses with revenue between $1M and $10M are approved by small banks.
  • 96% of businesses with revenue greater than $10M are approved by small banks.

The All-Too-Frequently-Cited U.S. Bank Study

Seen this one? 82% of all businesses fail due to poor cash flow management or poor understanding of cash flow itself. At PayPie, we’re careful to reference this statistic because:

  • The source is a U.S. Bank study conducted by Jessie Hagen. While this statistic is cited like crazy, it’s difficult to find the original source. Some citations, such as the one above, date back to 2011.
  • Checking her LinkedIn profile, Jessie was the vice president of U.S. Bank’s small business division from 2001 to 2006. So, the report was likely created during those years. This source puts the date around 2005.
  • Finding consistent statistics on small business failure rates is an equal challenge. This post also goes into the confusion surrounding these numbers.

Read More: Cash Flow Basics and Key Concepts 

Late payments are a BIG problem for SMEs

Cash flow management is all about timing inflows against outflows. When customer payments are late, the cycle gets all out of whack. Unfortunately, this is all too common in the SME universe. The following studies explain why:

2017 C2F0 Working Capital Outlook Survey

  • 24% of SMEs say that their customers are often late paying their invoices.
  • 28% of SMEs worldwide struggle with late payment.

2017 Sage Report — The Domino Effect: The Impact of Late Payments

  • 1 out of 10 SME invoices is paid late.
  • Late payments to SMEs total nearly $3 trillion worldwide.
  • Over 30% of SMEs experience or expect to experience a direct negative impact from late payments.
  • 10% of late payments are written off as bad debt.
  • SME spend nearly 15 days a year chasing payment on outstanding invoices.

2015 Wasp Barcode Small Business Accounting Report

  • 51% of SMEs consider accounts receivable and collections a top business concern.

Words of the Wise: Our Favorite Cash Flow Quotations & Our List of the Best Cash Flow Books For Business Owners

The facts on SME credit reports

The current system for evaluating an SME’s credit history doesn’t favor the businesses themselves. Business credit reports are generated by several different organizations and most business owners don’t even know where to start in terms of managing these reports.

SMEs suffer awareness issues:

Business credit reports are complicated: 

Why this matters:

  • SMEs who understand their credit score are 41% more likely to be approved for business financing.

Read More: What’s a Business Credit Report and Why Should You Care?

The facts on SMEs and financial knowledge

Honestly, unless you earn an MBA, they don’t teach entrepreneurship in schools. Most business owners learn as they go and any gaps in knowledge aren’t a reflection of personal fault. No single person can know everything. (Ok, we all know that one guy…)

  • Nearly 1 in 5 business owners don’t have separate business and personal banking accounts.
  • Only 39% of SMEs consider themselves generally knowledgeable about accounting and finance.

The numbers that prove why SMEs trust their accountants

Thanks to cloud-based small business accounting software, the internet and the modern age, it’s now easier than ever for SMEs to work with an accountant.

Read More: 10 Reasons Accountants Should Offer Cash Flow Consulting

The statistics on better SME business funding and risk scoring

While some of the cash flow statistics in this post may seem downright daunting and depressing, there is genuine hope for the future. Alternative financing options, like online and asset-based lending, are growing and technology continues to advance the cause of SMEs.

Read More: How Cash Flow Consulting Helps Businesses

Make your numbers work for you

At PayPie, we believe that the financing barriers most SMEs face simply aren’t their fault. In fact, our company began from a conversation where a small business software user asked, “Why can’t my lender just look at the reports I have in my account?”

Applying for traditional business financing can be tedious. So, can managing cash flow. Until now. If you’re a QuickBooks Online user, like roughly millions of other SMEs around the world, you can connect your QBO to your PayPie account and start analyzing your cash flow today.

Your interactive report, filled with insightful charts and graphs, will also contain a proprietary risk score derived from the same near-real-time data. It lets you know where you stand right now, instead of where you stood three months ago.

main dashboard and ratios

As soon as it’s available, our invoice factoring will let you access a global marketplace of lenders in order to turn outstanding invoices into accessible funding.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.