At a high level, businesses want to receive their cash as fast as possible and extend their payables as far out as possible. Why? Because it supports strong cash flow for their operational costs.
Think of your household and personal finances as a business for a moment. You know you get paid every 2 weeks, you know when you will receive your commissions, your checks for completed projects, and the other forms of income, right? So, lets mark those days on a calendar.
Now, review your budget, expenses, and all financial obligations. When are all of your bills due? Mark those days on a calendar.
Once you’ve got on your calendar the days you receive cash and the days you need to make payments, take a hard look and analyze it for a second. Are all of your bills due prior to actually receiving your cash? If so, you’ve potentially got a CASH FLOW ISSUE and you should address this right away!
If you have a cash flow issue, you are most likely running extremely thin on cash, transferring money out of your savings, utilizing a bank line of credit, using personal loans, getting advances from check cashing companies or revolving balances on a credit card to cover your bills. This is a painful position to be in because you are not gaining forward momentum with your financial life. You are trying to take 1 step forward but you’re also taking 2 steps backwards. And worse – you are paying interest to the banks and taking cash away from your savings!
If you are in this position, here’s how you can address it so that you can reduce your costs from borrowing and optimize your cash flow.
Call all of the companies and lenders you have bills with and request to change the cycle of your statements. If your statements are due at the beginning of the month, ask them to change the cycle so that your bills are due at the end of the month. This will allow you to collect your money first and then pay the bills! The first calls you can make are with your credit cards and internet/television providers. Don’t worry, this is not a huge favor to ask. They do this all the time!
This simple step will help you optimize your cash and keep you in a stronger position on a day to day basis. The goal is to extend your payment obligations as far out as possible, without having to pay additional fees or interest. There are other methods and tools you can leverage to improve your cash flow. Check out how this can be done with your credit and charge cards!