By Serenah McKay

How well you manage your company’s cash flow can make or break your business, especially in today’s tough economy. When sales are sluggish and credit is tight, having cash on hand boosts your bottom line and provides a cushion against adversity.

Personal finance expert Ken Clark spoke at the Northwest Arkansas Business Conference & Expo at the John Q. Hammons Center in Rogers last August, giving local business owners advice on managing their cash flow.

Clark (www.kenclarkcfp.com ), a Certified Financial Planner, is the Campus Chair of Social Sciences at the University of Phoenix’s Little Rock Campus, and frequently teaches at the university’s Northwest Arkansas campus in Rogers. He has written several books, including The Complete Idiot’s Guide to Getting Out of Debt; The Complete Idiot’s Guide to Boosting Your Financial IQ; and The Pocket Idiot’s Guide to the FairTax. (The national sales tax supported by Mike Huckabee).

We asked how small businesses could grow their stash of cash. Here are Clark’s top five:

1.   Shorten the cycle. Reduce the time it takes to bring in cash and increase how long it stays in your bank account. In other words, be quick to collect and slow to pay, unless someone makes it worthwhile to do the opposite. This protects your ability to weather financial storms, increases your ability to take advantage of unplanned growth opportunities and reduces the need for short-term financing.

2.   Keep your eye on opportunity. Watch the “opportunity cost” of your money, or the rate of return it could be generating if invested back into your business. Many make the mistake of calculating the return on their actual cash, while not looking at the return on their “cash equivalents,” especially accounts receivable.

3.   Look for incentives. Add interest and late fees to your invoices to encourage timely payment. To increase the collection of accounts receivable, consider giving a discount for early payment. If you can earn 3 percent annually on money in the bank, consider the value in giving your customers a discount (up to 2.99 percent on an annualized basis) to make payments early. That gives customers an incentive to pay, while gaining economic benefit for your business. And, in reverse, increase the return on your cash from accounts payable by offering to pay your vendors early to receive a discount. Remember to negotiate a discount rate greater than what you earn on cash in the bank.

4.   Make them fight for your business. You don’t need a service like lendingtree.com to help you compete for the best rates from lenders and vendors. Request quotes from five to ten sources with details of what you’re looking for and let them know they will be competing for your business. When you receive the first round of bids, send a second round letting them know the price to beat. Choosing suppliers this way will chew up less of your immediate cash flow and decrease the cost of borrowing over time.

5.   Find a PayPal. Instead of using traditional credit card processors, consider PayPal for credit card receipts, especially if you are non-retail businesses. PayPal credit services can easily save you 1 percent, which can add thousands to your cash flow annually.

Serenah McKay is a freelance writer and editor who lives in Rogers. E-mail her at serenahmckay@hotmail.com.