How can I increase my cash flow

Improve cash flow: How companies increase their cash flow

What is the cash flow?

The cash flow describes the achieved increase in the liquid assets of a company within a certain period, usually one year. In German you can translate the English term one to one with “money flow”. Have a positive cash flow extremely important for a companyas it means the company is making real profit.

Cash flow is not the same as the company's liquidity. The latter is just an exact number that represents the company's cash and cash equivalents at a specific point in time. The former, on the other hand, is one Movement sizethat indicates the inflow and outflow of liquidity over a period of time.

How do you calculate the cash flow?

Today the so-called “indirect method” is normally used to calculate cash flow. From the annual profit after tax deduction (difference between all income and expenses), all expenses and income that are not cash-effective, i.e. not available as liquidity, are added or subtracted. The following simplified example shows the finances of a company:

Turnover: CHF 100,000Salary payments: 60,000 CHF
Depreciation: CHF 20,000
Provisions: CHF 10,000

The cash flow is calculated indirectly via the profit: 100,000 CHF income - 90,000 CHF expenses = Profit of CHF 10,000. From the income, however, points have now also been deducted that have no influence on liquidity, namely the depreciation and provisions. These must be added back to the profit in order to receive the real inflow and outflow of liquid funds: 10,000 CHF + 30,000 CHF = Cash flow of 40,000 CHF.

How can you improve cash flow?

Obviously, it's important to have at least one positive cash flow. There are numerous ways to improve the flow of liquidity in the company. One product that is becoming increasingly popular on the Swiss market is the so-called. Factoring. What is this method about?

Factoring is a form of pre-financing of receivables. Invoices sent to customers are financed by a business partner (the so-called factor) before customers pay. In detail it looks like this:

  • A company sends its customer an invoice for CHF 50,000. It sends a copy to the factor.
  • The factor pays 90% of the customer bill within a short period of time, i.e. 45,000 CHF.
  • The customer then pays the factor transparently, within the normal period or longer.
  • As soon as the customer has paid the factor in full, he transfers the outstanding 10% of the claim, i.e. 5000 CHF, to his customer company.

This product comes from the B2B business area, but is becoming increasingly available for companies that not only have companies but also private individuals as customers.

Why improve finances through factoring?

The pre-financing of customer invoices has two decisive advantages: Speed ​​and payment security. The factor transfers the outstanding amounts faster than most customers and pays even if the customer should be insolvent. As a result, a company benefits from faster flowing income and is guaranteed to be paid for 90% of the invoice amount. Both points help to improve cash flow:

  • Obviously, faster income means more liquidity within a certain period of time.
  • Paid receivables mean real cash and are not booked as outstanding balances, so improve the cash flow

Where can I find an offer?

In order to benefit from measures to improve cash flow, detailed advice from a specialist in corporate finance is necessary. Multicrédit is an expert looking for exact solutions for specific products for client companies. Make use of the contact to a financial expert for factoring, who can analyze your company situation in detail and check and optimize your dossier. The services of an independent financial broker also enable a tailor-made offer, often at the best market conditions. We recommend every customer to find out more about his financial product before making a commitment.

Article written by the Multicrédit team.