Cash on hand offers businesses a level of financial flexibility and security that can help them continually succeed.
This piece covers the benefits of cash transactions and provides simple tips on other payment methods to maximize business liquidity.
The role of cash in businesses
Cash flow represents one of the most critical aspects of financial health. It serves as the lifeblood that keeps your operations running smoothly and allows you to meet your financial obligations.
Physical cash isn't just about making online purchases and avoiding reaching your credit limit. It's also a valuable tool for strategic planning and risk management. Healthy cash flow into your bank account can give you peace of mind while you navigate the challenges of running your business.
Understanding cash on hand
Cash on hand refers to readily available liquid assets. It includes digital money in your bank accounts and physical cash you store on-premises. Any other funds that can be accessed quickly also count as cash on hand.
Unlike other assets, cash is not tied up in investments or receivables. Instead, you can immediately make purchases and cover expenses by carrying cash. While tracking all purchases made with paper money or company debit cards is essential, you don't have to worry about taking on any lasting debt or paying interest with cash. Avoiding interest charges can support your company's long-term health.
Cash advantages: 7 benefits of having cash available
Cash flow management is essential to present success and future planning. Without proper management of cash on hand and other finances, businesses may face greater challenges in covering expenses, repaying investors, or covering other immediate or long-term needs.
That said, cash has important advantages that can help your business thrive. Here are 7 of the biggest benefits.
1. Seize opportunities quickly
When you have cash, you can act quickly when opportunities arise. Whether it's acquiring a competitor, investing in new technology, or expanding your operations, having plenty of cash in your bank accounts means you can move decisively.
For example, suppose you have been looking to expand your fleet and purchase three new vehicles. You come across a great deal on three trucks that perfectly align with your budget and long-term expansion goals. If you have plenty of legal tender, you can offer cash to avoid paying high vehicle interest rates.
2. Manage emergencies and unexpected expenses
Unexpected expenses come with running a business. Equipment can break down, market conditions can change suddenly, and natural disasters may disrupt the flow of money to your business. Your business can handle these unforeseen events with cash reserves without scrambling for funds, promoting continuity.
Paying with cash helps you avoid these headaches and get your business back up and running fast. You can access the funds you need immediately, purchase necessary parts, and reduce the risk of protracted disruptions to your operations.
3. Maintain smooth operations
Cash on hand ensures that businesses can run their daily operations smoothly. You can cover payroll, supplier payments, and other operational expenses without relying on credit. This helps you maintain good relationships with employees, suppliers, and other stakeholders.
Banks like to see that businesses consistently have good cash flow. If financial institutions realize you possess a large amount of money, they may be more willing to issue your business a credit card or approve a loan. While cash is king, a credit card can be a valuable tool for your business. Use it to build credit and protect yourself from identity theft when making certain purchases that appear risky.
The bottom line is that cash on hand offers direct and indirect operational benefits. You'll have the capital necessary to make each important payment on time. You can also use your money as leverage to apply for credit cards and access favorable funding options from banks.
4. Negotiate better deals
Cash gives you leverage in negotiations. Whether working out a deal with suppliers, seeking rewards from a credit card company, or trying to secure extra money from banks, having cash on hand will make the process easier.
Any entity you do business with wants to see that your company has strong, consistent cash flow. Merchants and vendors may offer discounts or more favorable contract terms if you can pay in cash. These discounts can provide significant savings and improved profit margins.
For example, many vendors offer discounts for early bill payments. Suppose that one of your suppliers traditionally offers net 30 payment terms. You must pay your bill within 30 days of receiving the invoice. If you pay it within seven days, they may offer a 10% discount.
Like you, they also need plenty of cash on hand. Early payments help protect them from a backlog of accounts receivable (AR) invoices. In exchange, you'll enjoy a discount on their services. Everyone wins.
5. Enhance financial stability
Cash reserves provide a cushion against economic downturns and market volatility. They offer a safety net that helps keep your business afloat during tough times. This financial stability can also enhance your company's creditworthiness and attractiveness to investors.
Consider a case in which your business encounters a slower-than-normal winter season. As a result, your revenue projections are off by about $10,000, leaving your organization operating at razor-thin margins.
If you have little cash on hand, it may be tempting to take out a loan to give yourself a cushion. However, that loan can quickly become a burden if the slow-down extends beyond the winter months.
Business momentum works both ways. Negative momentum can snowball, leaving you facing a mountain of debt and a lack of revenue. Conversely, having large amounts of cash in your accounts can help you get your business back on track following an unexpected market shift or economic downturn.
6. Support cash flow management
Effective cash flow management is critical for your business's success. Cash on hand helps manage the timing gaps between receivables and payables, ensuring that you can meet your financial obligations on time. This, in turn, reduces the risk of cash flow crises and keeps your business running smoothly.
Analyze your company's recurring monthly expenses and identify your "floor." Your cash floor is the minimum amount of money you ever want to have available after all expenses have been paid. If there's a delay between covering expenses and collecting AR invoices, your floor will provide a much-needed cushion to cover any unexpected costs.
7. Boost confidence and morale
Knowing that your business has cash reserves can boost your team's confidence and morale. It demonstrates financial health and stability, which can be reassuring to employees, customers, and investors alike. This confidence can translate into better performance and stronger business relationships.
Strong cash reserves can also be helpful if you are trying to attract investors or business partners. Prospective partners may view your company as more stable if you have maintained consistently high volumes of money in your business savings accounts.
Ready to leverage your cash on hand?
Cash on hand is not just about safety; it's also about leveraging opportunities for growth and success. One way to effectively take advantage of your available cash is through financial tools like BILL. Our suite of solutions includes cash flow forecasting, AR and AP automation tools, expense management, integrations, and more.
Increasing financial visibility with a platform like BILL is the first step to better cash flow. You will enjoy end-to-end transparency in terms of obligations and incoming money. Use this data to increase cash on hand and build strong reserves. BILL also offers a variety of lending solutions, including virtual cards and business credit options.
Explore our cash flow management tips to keep more cash on hand, and check out our finance products to unlock awesome business benefits.