Get tough with cash management

---

In today’s tough business environment, many companies are struggling to manage their cash flow requirements. 

Previously many businesses did not keep such a close eye on their cash position, because they didn’t have to. This has changed - credit is now limited. Profitability means little if you are having cash flow difficulties so we see a shift in the focus of business owners from profit to cash flow.

The critical issue in the short term is your ability to conserve and control cash. Management need to be relentless in its attention to this.

Here are some areas to consider to improve you cash flow:

• Negotiate extra facilities or repayment moratorium from bank
• Apply for grant assistance
• Attract an outside investor
• Look at finance houses outside the main banks
• Cutting overheads - employee reduction; closing unprofitable part of business/products;
• Outsourcing part of your business
• Increase pricing
• Source a cheaper source of supply of raw materials
• Negotiate discounts with your suppliers  
• Implement an efficiency/waste reduction policy  
• Ensure that the credit you receive from your suppliers is greater than the credit you give to your customers

What can you in relation to your employees and customers?

• Your credit controllers need to be uncompromising
• Implement payroll incentives or penalties for credit days with your account managers
• Each account manager needs to prepare a monthly budget for cash collections
• This budgets needs to be reviewed on a weekly basis
• Credit control limits need to be set on each account which automatically prevents further sales to be made to that account if it goes over its credit level  

Your Finance Department should collate all the cash flow targets for the month and produce a rolling cash flow forecast and they should manage it weekly.

When dealing with your customers, monitor each one closely until they are brought under control.   For customers looking for discounts, agree better payment terms from them in return. Consider asking your customers to pay by direct debit over a couple of months. Also consider asking for a deposit payment up front for large jobs or progress payments on jobs which will run on for a considerable period of time before being completed.

Hold weekly cash collection meetings which will allow the management team to provide support to the individual managers and assist them in collecting problem accounts.

Consistently be in the face of your debtors and extract commitments in relation to payment.  In order for this to work, all departments throughout the organisation need to appreciate the importance of the collection of debts and the controlling of costs. Communicate this message as clearly and as frequently as possible is vital to ensure that your business has enough working capital to operate effectively. 

For further information, please contact Deirdre McDermott, OSK Audit

Share this Post