Oregon Construction Contractors (CCB) Practice Test

What is the assessment of prompt billing and collections on cash flow?

1. They are detrimental

2. They improve overall cash flow

3. They are irrelevant

4. They only help large businesses

The correct answer is: They improve overall cash flow

Prompt billing and collections significantly enhance overall cash flow for a business. When a company issues invoices quickly after services are rendered or products are delivered, it reduces the time between completing work and receiving payment. This acceleration in the billing process contributes to a more steady influx of cash, which is crucial for covering operational expenses, paying suppliers, and investing in growth opportunities. Timely collections are equally important, as they ensure that payments are received soon after billing, thereby minimizing the risk of delayed payments and possible cash shortages. Good cash flow management through prompt billing and collections allows businesses to maintain liquidity, fulfill their financial obligations, and invest in new projects. The other options suggest either negative impacts or irrelevance, which doesn’t align with the principles of effective cash flow management. Prompt actions in billing and collections are not only beneficial to larger businesses but are critical for enterprises of all sizes in maintaining healthy financial operations.