Published on February 20, 2014
Why is Cash Management important? There is a saying: Turnover is Vanity, Profit is Sanity, Cash is King – cash in whatever form is the life blood of any business. Ability to be informed about your company means that you can make decisions with a good base of knowledge: Will I be able to pay end of month wages Can I purchase that new equipment Should I take on the new contract What happens to companies that do not have this information – a well know statistic is that 85% of businesses fail in the first 5 years and the most common reason is “lack of cash”. . 1 For more information see www.daviescorporate.co.uk/cash-flow-finance
Who does Cash Flow Management? In essence – not many businesses. For many SMEs there is not enough hours in the day to complete the work they have – let alone manage the cash! Most companies, do not have a full time “finance” post – even if there is an Accounts person/department – they do not plan and manage the cash. Large corporates tend to have a dedicated person whose sole responsibility is to forecast the income and expenditure of the business – there is obviously a ROI for their salary! . 2 For more information see www.daviescorporate.co.uk/cash-flow-finance
A Cash Flow Cycle Day 1: Order Goods Up to day 14 – receive goods Day 25 – 40 receive invoice for goods/stock purchased. Goods are then produced and at some time in the future sold! After Order or sale the goods are delivered to customer – say 3-5 days Invoice produced and forwarded to customer for payment Assuming credit terms of 30 days – payment received Min Number of days cash Flow could be 45-60…maximum could be 200+ depending upon production. 3 For more information see www.daviescorporate.co.uk/cash-flow-finance
Cash Planning Based on the previous cycle – it is key to plan. Cash Flow forecasting – a requirement to plan – details expected income, known expenditure and when they are due to happen. Many aspects have to be forecast – but remember a sale is not a sale until the money has cleared! Remember to be realistic – there is no point in assuming that you will convert all estimates/bids for business – look at past info. Some companies prepare 3 forecasts – optimistic, realistic and pessimistic – to plan for all eventualities. 4 For more information see www.daviescorporate.co.uk/cash-flow-finance
Cash Flow – The Ins and Outs Accounts Receivables – collecting payments: Around 77% of business sales are on credit terms. Always issue credit terms with your invoice. Normal term 30 days….but lots of variations! Ensure that your customers are aware of your payment terms. Ensure that you have in place a credit control system….and do not be afraid to chase for your money! Always credit check a new client before you accept an order …. regularly check existing customers. Accounts Payable – your payments out : Ensure that you know your suppliers terms – and pay on time. As much as possible, ensure that your business has a good credit rating and use it to obtain accounts and even discounts from suppliers. Negotiate discounts for cash payment. Verify/check invoices before they are paid. Manage your payments – plan when it suits YOUR cash flow to pay. 5 For more information see www.daviescorporate.co.uk/cash-flow-finance
Top Cash Flow Tips Ensure that you let your customers know when they are due to pay you. Whilst always happy to get new orders from new clients – remember to credit check them. Establish a credit granting application form. If new to you, who were they dealing with before – have they been put on stop! Keep good records – if a payment is late, make sure that you chase immediately. Keep a cash flow forecast – use it and update it – it is a great base for decisions. Establish supplier accounts, relationships where possible – if not try to obtain discount for cash . Try to keep stock to a minimum – it uses valuable cash assets to keep items ready for sale. Invest in a good stock control system. 6 For more information see www.daviescorporate.co.uk/cash-flow-finance
More Cash Flow Tips Sounds crazy……but remember to invoice as soon as possible and include: Bank Account Details – BACs payments are cleared funds the day they are received…a cheque can take between 4-7 days to clear! Date when the payment is expected to be received by you. If possible use electronic means to send invoice – email, is much quicker. Not always possible, but call the customer’s accounts depts. to verify everything OK with invoice and it is the next payment run. 7 For more information see www.daviescorporate.co.uk/cash-flow-finance
Cash Flow Solutions – alternative finance Rather than resort to your credit card….there are other ways: Bank Overdraft facility – perfect if you qualify – but likely to require security. Business Loan – Government will guarantee some requests – criteria apply, but not really used for cash flow purposed more for asset purchases. Bank will certainly require security. Options available: •Construction •Recruitment Finance •New Start Business Finance •Trade Finance •Export Finance Venture Capitalists, Angel investors Factoring Invoice Discounting 8 For more information see www.daviescorporate.co.uk/cash-flow-finance
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