Articles Tagged ‘Accounts payable’

Six Ways to Speed Up the Flow of Cash

Thursday, November 7th, 2013

Protecting your company’s cash position and insuring that you have adequate cash flow in future months is critical in our current business climate. The US economy is flat at best, political leadership is anti-business (just look at the tax rates kicking in January 1), the banks are wary of any business without a AAA credit rating, and climbing health care costs are still an issue. If there was ever a time to be “cash flow” diligent, it is today.

What do you do? Here are 6 proven techniques you can use for immediate cash flow improvement:

Profitability – Typically we don’t correlate profit with cash flow, although they are directly tied together. Businesses that are losing money will have more cash flow problems than business that are making money. As we get close to the end of the year, don’t let your accountant talk you into spending a bunch of money to lower your tax liability; sometimes it pays to pay a little in taxes to protect your cash flow and your equity position in your company. If you are making money, your chances of maintaining a positive cash position are very good.

Revenue – This is the first step in cash flow; without a sale, there is no cash to flow. Growing revenue is a positive contribution to cash flow so keep your sales people more accountable on hitting monthly sales targets. Develop a monthly revenue forecast. This can be done by department, geographic area, product line or for each sales person by customer. Be realistic in your forecast, based on historic trends – will your forecast be conservative, moderate or optimistic? Measure each sales person’s performance monthly in a sales meeting. If you need to, take the next step and start measuring behaviors of each of your sales people with call reports (some will already have a pipeline report in their CRM) but look at contacts, presentations, closes and dollars sold per month.

Accounts Receivable – You can improve your collections with these steps:
●Review your A/R report weekly.
●Review each account that is over 45 days old – what is being done? Are promises being made? Get informed on who is paying slowly.
●Get out in the market and talk to your slower customers – see what is going on. You would not believe what impact a “presidential” sales call has on revenue growth. I once encouraged a business owner to call on a slow client and he was appalled at what he learned, but he was 90 days too late.
●Invoice weekly instead of monthly.
●Fax or email each invoice – don’t rely on snail mail.
●On slow accounts, consistency is the key
●Get a good collection agency working for you. I recommend Al Holdren at Atlas Collections in Muncie 765-751-3210.

Inventory – less is better. Inventory is not cash and the less you have of it the better you are from a cash flow standpoint. Work out a plan with your supplier to see if they can deliver more often, convert your old inventory to cash, and measure your current inventory level against your current revenue level – you probably have too much inventory on hand. This is typically the place where dead money sits but few business owners realize it.

Borrowing – make sure you have maximized this resource. If you can restructure or refinance some existing long term assets at today’s low rates, you should jump on it. Although credit is harder to obtain, there are still lenders out there looking to lend money. Exhaust this ability by putting together a good business plan with your company’s last two year’s performance and start looking. If you noticed, many large companies are going to the bond market and building large cash resources at very low costs. We have been very successful in helping business restructure debt, lower interest costs and lower payments to really improve cash flow.

Accounts Payable – more is better. Although suppliers are also tightening up on credit policies, you can normally leverage this relationship for longer terms on repayment. If you are in trouble with your suppliers already, talk to them and show them your plan to repay and how they are going to make more money in your account by selling you more product. But don’t make any promises you cannot keep on repayment because that will hurt you in the long run.

A little bit of focus on these key areas will improve your cash flow dramatically.

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor
phone: 765-644-8887

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