How can a company improve cash flow management?

Healthy cash flow management ensures a company can meet obligations, invest in opportunities, and survive shocks. Aswath Damodaran at New York University Stern School of Business emphasizes the centrality of free cash flow to firm valuation and long-term decision making, and the practical consequences of poor liquidity include insolvency, constrained growth, and damaged supplier relationships. Causes of cash strain commonly include weak forecasting, long customer payment terms, excessive inventory, and unexpected external shocks such as economic downturns or climate-related supply disruptions.

Practical steps to strengthen forecasting and working capital

Accurate short- and medium-term cash forecasting is the foundation of control. Firms should build rolling forecasts that incorporate scenario analysis to reveal which assumptions drive liquidity risk. Stewart C. Myers at MIT Sloan School of Management and Richard A. Brealey at London Business School discuss working capital management as a key tactical levers including tightening receivables, stretching payables within contract limits, and reducing inventory without harming service. Improving collections often involves clearer invoicing, early-payment incentives, and consistent follow-up, while negotiating supplier terms can create breathing room without raising financing costs.

Financing options and operational levers

A diversified toolbox reduces reliance on a single funding source. Revolving credit lines and committed facilities act as contingency buffers, and selective use of invoice discounting or supply-chain finance can convert receivables into working cash. However, these instruments carry costs and covenant obligations, so governance and transparency are essential. Operational actions such as dynamic pricing, demand shaping through promotions, and staged capital expenditures align cash outflows with receipts. Technology that automates billing, payment reminders, and cash-pool structures improves visibility and reduces human error.

Contextual and cultural considerations that matter

Cash flow strategies must respect territorial and cultural realities. In many emerging markets weaker contract enforcement and longer informal payment practices increase days sales outstanding and necessitate larger cash reserves. Gita Gopinath at the International Monetary Fund has highlighted how global liquidity conditions and local institutional capacity shape corporate resilience. Seasonal businesses and firms exposed to environmental risks such as extreme weather need contingency planning that recognizes local supply chain vulnerabilities and community impacts. For instance, suppliers in climate-sensitive regions may require advance payments to maintain operations, creating tradeoffs between social responsibility and cash efficiency.

Consequences of persistent mismanagement and the path to resilience

Persistent under-management of cash can force asset fire sales, layoffs, or bankruptcy, with cascading social and territorial effects when local employers shrink. Conversely, disciplined cash management preserves optionality, maintains supplier trust, and supports sustainable investment. Building internal expertise, adopting transparent policies, and consulting external advisors when necessary create credibility for lenders and partners. Combining sound forecasting, disciplined operational controls, and an understanding of cultural and environmental contexts builds a resilient cash position that supports both business continuity and long-term value creation.