What to Do with Excess Cash Flow

What to do with excess cash flow is something many of my clients ask me about. Some companies do produce excess cash, even in these trying economic times. It’s usually because of a seasonal fluctuation in business, sometimes it’s just because a business is really good. The first instinct many seem to have is to put the extra money in an interest bearing bank account. As a Part time CFO, I have seen money market and CD rates and know that if you went with that instinct, you’d be lucky to get an interest rate of 1% per year.Other options for your excess cash that might be more productive:

  1. Some Trade Vendors offer early pay discounts as a matter of policy, and some can be convinced to accept a higher discount. Call them to check, because you may be asking at a time when they need cash.
  2. Your landlord might also give you a discount for prepaid rent.
  3. Pre-paying your expenses to your expense vendors is another opportunity for a discount.
  4. If you can dip back into it and your bank doesn’t freeze you as you try to do this, you can pay down your line of credit.

Points 1 to 3 will have to be paid in the near future anyway (they’re operating expenses). It’s different from point 4, which involves additional money aside from ordinary operating expenses (so with respect to the credit line, you should make sure you can borrow back into it). Anyone of these options should yield much better results than an interest bearing bank account.

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