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Cash Flow Management

Here’s a list of cash management tips that have appeared on over the past year or so….


  • Try to maintain an adequate level of cash to meet current obligations.
  • Invest excess cash into assets that generate a return. However, you must be able to convert these investments back into cash quickly.
  • Protect your cash balance by paying obligations only as they come due. Avoid late payments and the risk of incurring fees.
  • Convert current assets into cash. Inventory must be converted into accounts receivables and accounts receivables must be converted into cash.
  • Therefore have a system for getting paid on time.
  • Use ratios to monitor the conversion of cash, such as number of days in inventory and number of days in receivables. If those days start stretching make efforts to get on top of the reasons and take corrective action before your business gets into trouble.
  • Cash depends on inventory, purchasing, receivables, payables, etc. Have a look at all of these workflows so that they are optimised from the point of view of quickly turning into cash.
  • You can then do cash forecasts. If possible manage on a weekly basis. And have separate handling cash, reconciling cash accounts and other cash control procedures.
  • The aim is to protect cash just like any other asset through strict internal controls.
  • Look at the history of your cash flow. Once you understand outflows and inflows and when they happen, you can take steps to cut cash outflows and increase collections.
  • One of the biggest cash outflows is payroll. Try and manage it with flexibility in mind. Discuss with staff when there are peaks and troughs in the business and see if rostering can be shaped to the needs of the business. Stress that a flexible approach and an ability to adapt are vital during this straightened times.
  • Look at purchasing. Why do you have to buy everything new? Purchasing used items or renting/leasing can save a lot of cash flow.
  • You may want to purchase in minimum quantities, especially if your cash flow is tight. And don’t hold inventory that isn’t moving – get rid of it.
  • As sales grow, cash needs will grow. Planning for future sales must include planning for additional requirements for cash.
  • Inventory financing can be used where inventories are highly marketable. The inventory serves as collateral within the financing arrangement.
  • Draw up a cash flow forecast and discuss this with your accountant and bank manager to see if a plan can be worked out to improve your cash flow.
  • Review all your business expenses and see if there is any possibility of reducing these costs temporarily. For example, look at vehicle use, mobile phone costs, stationery, contractors.
  • Check your prices. Make sure that you are charging correctly. If necessary, re-cost so that there is a proper margin put on to the costs of a particular product. Some businesses record ever increasing sales figures and yet their cash situation is critical from month to month. It’s possible there is not enough profit built into the products and the sales are only covering the costs of getting the product out.
  • Review your immediate sales program to decide your real sales potential within the next month, three months or six months.
  • Get cash first and give credit last. Don’t extend credit to anyone unless necessary. A cash business is ideal, even if you have to give a discount to get that money into the till.
  • Get your invoices out quickly so that your debtors can pay them by the due date. Make sure this side of the business is efficient. If you have made sales and they need to be charged or invoiced out, then this area of the business is obviously very important. These are minor matters, but it is the small things in business that can cause the biggest problems.
  • Prepare a list of your debtors (that is, people who owe you money) and carry out urgent action to collect. If payment is still not forthcoming, then follow this up with a demand in writing. If payment is still not made, consider the services of debt collectors if debtors do not respond to your reminders. The fact that this could affect their credit rating usually moves debtors to pay to maintain their good business name. It is better to lose the business of a bad debtor than to continually spend time and resources chasing money owed to you.
  • Prepare a list of your creditors (that is, firms to whom you owe money) and make arrangements (if possible) to get extended credit on money you owe. Instead of getting 30 day terms, see if that can be extended to 60 or 90 days. Remember, this is interest free money and having the extra time gives you the ability to collect all your money before you have to pay your bills.
  • Investigate leasing assets instead of buying them. Instead of paying cash for vehicles or equipment, look at leasing them. Even though leasing may cost you a little bit in interest, it can improve your cash flow and allow you to put that cash to better use.
  • List any assets such as plant and equipment that are not in use and that can perhaps be sold for cash.
  • Check your present overdraft accommodation. If you are over the limit, talk to your bank to see what can be done about it.
  • Do not over commit as far as loans are concerned, because their servicing can greatly affect your cash situation.
  • Make sure you plan well ahead of any capital expenditure because this outlay will not bring in a quick cash return.
  • Always carry a cash reserve under which you will not make any more payments until the liquidity situation is improved. This applies mainly to your working capital requirements.

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