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On top of that, as the outlook on the future economic landscape continues to worsen, cash velocity is becoming all the more essential.įor finance teams, cash flow is king, and understanding how cash velocity works and how to improve it can be game-changing for the financial health of organizations everywhere. Think about it like this: if you’re waiting on a long DSO period just to get the money that’s owed to you, and you don’t have enough overhead to pay your employees, you might have to shutter your company before your revenue even hits the bank.
What is Cash Velocity?Ĭash velocity defines how quickly your business can get its revenue through the door – something that can be make-or-break depending on your company’s financial solvency. Let’s take a look at a couple of steps your finance team can take to help put you and your software company in the right place to take advantage of every opportunity. However, managing growth in customer and payment volumes typically requires hiring more Accounts Receivables staff, which is unpalatable in the present economic scenario. There is still private equity and venture capital out there looking for companies that are growing their cash flows and generating predictable growth despite the economic headwinds. Around the country, software companies are seeing their private and public valuations cut by 40% to as much as 80%, even as funding is drying up.īut that doesn’t mean that everything is doom and gloom. But it’s become increasingly important for software companies as we transition from a cheap-money economic landscape to one where cash is much less readily available. Cash velocity is important regardless of what industry you’re in.
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