In the current economic landscape, ensuring healthy and predictable cash flow is a major priority for entrepreneurs.

According to Bank of America’s Business Owner Report, 77% of owners say their costs have increased over the past year; another 75% are being impacted by supply chain issues, and roughly 3 in 5 are battling labor shortages.

A heightened focus on cash flow is not only understandable; it’s strategically sound. Cash flow is a fundamental measure of overall business health because it literally represents the movement of cash in and out. Positive cash flow puts owners in a strong position to reinvest in their venture, while negative cash flow signals a need to optimize operating costs and revenue collection practices.

With that in mind, here are three tips for managing cash flow.

Forecast Three, Six and 12 Months Out

When running a small- to mid-sized business, it’s easy to become overwhelmed by the demands of the present, but owners must keep an eye on the horizon. Entrepreneurs can create greater cash flow stability by estimating costs and expenses three, six and 12 months out. This might include payroll costs and should factor in a realistic timeline of when bills and invoices are due. In some cases, owners may project times of weak cash flow and proactively find financing to fill the gap.

Take Control of Accounts Receivable and Payable

A major tenet of good cash flow management is staying on top of accounts receivable and payable. A best practice with receivables is to invoice customers the day of the sale or service and outline payment terms from that initial date, whether payment is due upon receipt or within 30 days.

To incentivize prompt payment, owners may offer early-payment discounts, a strategy particularly beneficial for mitigating cash flow gaps, as in the case of the small bespoke furniture company. Accepting diverse payment methods — from traditional credit cards to digital options such as Venmo — can also streamline customer remittances. Per the Business Owner Report, among the 91% of business owners who plan to use digital tools in the next five years, more than half (52%) will do so to accept more digital payments.

For payables, owners should carefully vet vendors and prioritize those with more flexible payment terms. In the furniture company’s case, negotiating short extensions on noncritical invoices with regular vendors could help the owner cover a cash flow gap. Additionally, rather than paying every vendor bill at once, owners should stagger payments by due date to avoid an end-of-month cash flow crunch. Finally, when owners need to carry balances to pay vendors or other expenses, they should consider using less costly forms of credit like low-interest bank loans.

Optimize Inventory

Effective inventory management goes beyond ensuring product or raw material availability. Owners must also ensure that the business isn’t overordering because excess stock ties up capital that could otherwise be used for operations or growth.

Good inventory management reduces waste. Every unit of unused material or unsold stock represents a financial loss. With the help of AI-powered software solutions that provide precise, real-time tracking of inventory age, owners can implement robust “first in, first out” practices, ensuring older items are used or sold before newer batches.

Terry Parker is senior relationship manager, business banking, at Bank of America in the Triangle.

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