Cash Flow FitnessThe next 18 months are predicted to test even the most seasoned business management veterans.
Managing your cash flow or working capital is about making sure that profitable trading actually
turns into cash. As consumers tighten belts, there are some cash flow strategies you can start immediately.
PAY ATTENTION TO INVOICES: It's difficult to be paid on time if your invoices are incorrect or sent out late. Make sure that your accounts team or bookkeeper has the information required to issue correct invoices.
STAY CLOSE TO CUSTOMERS: Many people find the task of chasing outstanding funds daunting, as they're worried about getting customers offside. It's important to stick to your terms of trade and be on the phones the day after payment is due. Make sure you know your customers' payment cycles.
OUTSOURCE DEBT COLLECTING: You can outsource some of your credit and collection activities in order to tighten your days receivable, but be careful who you engage. If the quality and service standard are out of step with your brand, it can potentially damage relationships with customers.
KEEP STOCK LEVELS LOW: Inventory sitting in your warehouse is,the same as cash left on your stockroom
SCRUTINISE NEW CLIENTS:Undertake a credit assessment before you accept new clients. Make sure that they clearly understand your payment terms and agree to your conditions at the beginning of the relationship. Have shorter credit terms for new clients.
PAY SLOWLY: Make sure to maximise the payment terms available so that your cash can be kept in the bank as long as possible. Review key supplier
SELL UNDER-UTILISED ASSETS: Review to find out if there is any under-utilised plant or equipment. Selling idle machinery and then hiring it back when required is a useful way to free up capital.
MAKE SURE YOUR FINANCING IS APPROPRIATE: While the current tight
LINK PERFORMANCE TO CASH FLOW: Some companies have found that linking working-capital targets with senior management's key performance
PREPARE A CASH FLOW BUDGET: This is a critical management tool to help you forecast expected cash inflows and outflows. It's a useful way to help you plan for upcoming expenses or take advantage of opportunities to utilise surplus cash. It's prudent to include some contingency funds in your budget in the event a major cuStomer is late paying, sales drop sharply or you experience a large blow-out in costs. Review actual versus forecast cash flows to identify any emerging issues.