7 Common Cash Flow Management Mistakes – And How to Avoid Them

Business reports with a red circle indicating a cash management mistake.

Cash flow management affects every aspect of a business, from the availability of funds for capital projects to the ability to survive unexpected economic events. It’s also a key component of great relationships with suppliers, employees, and partners.

For those tasked with managing their company’s cash flow, rapid advancements in financial technology – commonly shortened to fintech have changed the game. By leveraging fintech resources, your business can avoid the following common mistakes while driving profits and reducing your workload.

Mistake #1: Inadequate Cash Reserves

At a minimum, businesses must keep enough cash on hand to meet their day-to-day obligations, like payroll and other operating expenses. However, this often isn’t enough. For a company to be financially secure, they also need enough reserves to float operations for at least a few months in the case of an unexpected event.

With more cash comes the challenge of managing it. Fortunately, there are fintech companies that specialize in helping businesses with all aspects of cash management.

Fintech Cash Management Resources:

Mistake #2: Unprotected Cash

Bank failures are rare, but as 2023 made abundantly clear, they still occur. Your company can prepare for this scenario by ensuring cash is protected.

There are several options when it comes to protecting your cash, but none are more secure than government protection. This protection is available at banks through the Federal Deposit Insurance Corporation [FDIC] and credit unions the National Credit Union Association [NCUA]. Both offer the highest level of protection for business cash and are backed by the “full faith and credit of the U.S. government.”

Business accounts opened at FDIC member banks are automatically covered by FDIC insurance – but only up to $250,000 per bank and ownership category. Historically, this limit created problems for organizations with large cash reserves, but fintech has solved these issues. With a fintech powered deposit management partner, your company can access unlimited FDIC / NCUA protection along with a host of other benefits.

Cash Protection Resources:

Mistake #3: Idle Cash

Another mistake businesses often make when managing their cash is neglecting to invest it effectively. When cash is invested, the returns can help grow reserves and even add to profitability. On the other hand, businesses that leave large sums of cash idle in their bank’s savings or checking account are often leaving money on the table.

Fortunately, fintech once again has an answer. A technologically advanced deposit management company can spread business cash across multiple banks and credit unions, securing competitive rates from across the country.

Cash Investment Resources:

Mistake #4: Inadequate Liquidity

Not only does an effective cash management plan provide safety and returns, but the ability to access cash when needed. For short-term cash needs, checking, savings, and money market accounts can all provide the necessary liquidity. However, these traditional accounts often fall short on returns and safety. Fintech has made it possible for businesses to achieve the liquidity they want with the safety and returns they need.

For longer-term cash needs, fintech also improves safety and returns. By applying this new financial technology to classic investment strategies – such as CD ladders – businesses can leverage the power of a network of banks to achieve full FDIC protection and competitive returns.

Liquidity Management Resources:

Mistake #5: Inadequate Control Over Cash Outflows

For most companies, manual processing of invoices includes several touchpoints for receipt, approval, and payment. This can be time-consuming and expensive. Further, a complicated vendor payment process increases the prevalence of human error which can result in missed payments and strained vendor relations. A cumbersome process also opens your company to fraud such as internal theft, phishing scams, or even the simple impersonation of one of your vendors.

A centralized vendor payment system can alleviate these concerns. With a fintech powered vendor payments solution, your payments are verified and processed by a third party to ensure accuracy, timeliness, and fraud protection.

Fraud Avoidance and Vendor Payment Resources:

Mistake #6: Running a “Cash Only” Business

This may come as a shock, but many businesses still prefer to pay for everything in cash. Operating a cash-only business can leave your accounts thin in times of crisis and hamper your ability to take advantage of opportunities as they arise.

Similarly, many businesses have account receivable systems that make it cumbersome for their customers to pay for their products. A fintech powered merchant service provider can help. By implementing merchant services, you’ll receive competitive processing rates, and payments can integrate with your deposit management service. Then you can rest assured your funds are safe and growing at a competitive rate.

Accounts Receivable Resources:

Mistake #7: Ignoring Business Escrow Services

If your organization is planning a large order or a major transaction, you should be looking for a business escrow account. The overriding goal of an escrow account is to ensure that funds for a particular transaction are 100% safe and in the hands of a neutral third party until the transaction is complete. With fintech, this process is simple.

An escrow agent harnessing the latest fintech can ensure that all your funds are protected by FDIC insurance.

Business Escrow Resources:

Effective Cash Management Can Help Businesses Survive Uncertainty

By now, it should be clear that having an effective cash flow management plan is vital to long-term business success. It can be especially important when markets are volatile, and the economy is unstable. For example, during the COVID-19 pandemic, many businesses were forced to cease operations during lockdowns, and some never reopened.

The reality is, the pandemic, the Great Recession, and many other economic catastrophes have created challenges for almost every type of business. During these periods of economic stress, those with robust cash management plans were better positioned to weather the uncertainty. As a result, many of those businesses are now increasing the size of their reserves to better prepare for the next crisis.

Cash Flow Management Made Easy with ADM

Our company, the American Deposit Management Co. [ADM], has leveraged our proprietary fintech to provide a comprehensive suite of services to supplement your business’ cash flow management plan. Our deposit management services help your company access extended FDIC / NCUA insurance for all reserve cash. In addition, we provide access to nationally competitive returns and liquidity that meets your business needs.

Additionally, our business escrow services and vendor payments solution can help your business streamline transactions. ADM even extends this technology to optimize bond proceeds and referendum funds for government organizations. The best part about all of this is you keep your current bank. We are here to enhance your bank, not replace it.

When you open an account with ADM, our team of cash consultants will develop a strategy to optimize the return on your cash, maintain the liquidity that you require, and ensure your cash is 100% safe. Whether you need next-day liquidity, or you are more concerned with planned cash outflows, we can develop a cash flow plan that is right for your business.

At ADM, our team is our secret sauce, and we are always working hard to ensure your money is managed efficiently. If you’re ready to get started, reach out to a member of our team.

If you’re looking for even more valuable insights on banking, interest rates, and effectively managing your business cash, be sure to check out our Insights page, subscribe to receive our weekly article, and follow us on TwitterFacebook, and LinkedIn.