Managing an enterprise’s cash system and financial processes have become increasingly complex and demanding because there are risks and challenges that did not exist a decade ago. The modern business environment requires financial transparency, operational efficiency, and cash management oversight. An organization’s cash management inefficiencies can make the difference between operational survival and failure.
Changing & Challenging Environments
The global economy is expanding, diversifying and becoming more sophisticated. Supply chain and multinational offices now require financial systems that meet their needs, support collaboration and avoid financial mismanagement. Many legacy systems struggle to efficiently manage these new factors and relationships. Regionalized treasury and accounting strategies are weakening centralized control but provide better scalability and flexibility.
The growth of mergers and acquisitions have led to accounting complexities, such as multiple divisions with contrary operating procedures, and incompatible IT systems, such as accounting software systems and enterprise resource planning (ERP). This is why many businesses rely on integrated solutions and qualified service providers to help them with cash management, regulatory compliance and investment administration.
Cash Flow Reporting Visibility
Financial and accounting leaders must actively track cash flows for better forecasting and profitability. Management personnel may need to be trained how to analyze and understand capital expenditures, debt repayments, operating cash flows and common cash requirements. Knowing how to link cash flow forecasts to key capital metrics, such as days payables outstanding (DPO), days sales outstanding (DSO) and days inventory on-hand (DIO) may help.
It is helpful to actively review variances to actual results in order to refine and improve the accuracy of forecast models and assumptions. Integrating cash flow forecasting with P&L statements and balance sheet will help track performance against KPIs. Front-line staff can implement optimization techniques to improve cash management, such as collections scheduling and benchmarking vendor contracts against industry standards.
Domestic Payment Management
Electronic funds transfer systems, such as Automated Clearing House (ACH), are popular because they minimize certain risks, such as check fraud, duplicate checks and the failure to meet escheatment requirements. Digital systems are an excellent way to manage repetitive AP payments. They minimize errors and offer more cost savings through contractual discounts, but they are legitimate concerns about the loss of check float and the need to provide detailed remittance data.
Centralized systems offer mountains of master data that can be analyzed through the power of Big Data, machine learning and artificial intelligence. Daily exception reports can help to flag, track and resolve account anomalies. Domestic wire payment systems, such as real-time gross settlement (RTGS), are useful for using same-day settlement requirements. Companies can improve their accounts receivable collection performance through internal audits, daily reconciliations and free consultations.
International Payment Management
Some of the most daunting cash management challenges facing global companies involve electronic funds transfers. Due to the fact that the majority of countries around the world have their own ACH structures, this requires in-depth knowledge of local requirements. Many companies are implementing single-payments that automatically configure international payments into the necessary format.
Some companies are implementing enterprise payment architectures that can create banks, nation- and industry-specific payment formats. Creating a library of bank-specific adapters may satisfy the unique formatting needs of individual banks across the world. Many financial leaders follow the latest industry-standard electronic payment news for BACS, Fedwire and the Society for Worldwide Interbank Financial Telecommunications (SWIFT).
It always helps to benchmark the effectiveness of key financial systems and investment activities. These include capital market access, accounts receivable collection, cyber-security defense, company valuation analysis, merchant processing services, cash flow planning and debt restructuring strategies. Part two will cover risk mitigation, enhanced reporting and managing financial workflows, business processes
Your company’s survival and ability to grow depends upon your cash flow. In addition to providing capital to meet operating expenses, having cash on hand can give you the financial resources to fill a large order that could take your company to the next level of success. On the other hand, failure to manage your cash flow could render your business helpless when financial trouble strikes. Below are ten cash flow strategies designed to help your business increase your cash on hand.
1) Distribute invoices to customers right away. Delays in sending customers invoices lead to delays in receipt of payments and sluggish cash flow. By sending customers their invoices immediately, you can help ensure that you receive payments faster. Consider sending invoices electronically to expedite the invoicing process.
2) Focus on improving your forecasting. Enhancing your cash flow forecasting will help you identify cash flow patterns and seasonal trouble spots. You can improve your forecasting by regularly reviewing your receivables and taking preventive measures before danger zones roll around.
3) Do not automatically offer payment terms to new customers. When a new customer wants to establish a long-term relationship with your business, it can be tempting to automatically extend payment terms. Take the time to examine a new customer’s credit history and do not hesitate to require advance payment from new customers with a blemished credit history.
4) Make sure your customers know the payment options you offer. Failing to properly convey payment terms is a common mistake for many businesses. Some business owners do not do an effective job of notifying customers of payment options, while others simply assume that customers are already aware of the various ways they can remit payment.
5) Approach the holidays with extra caution. Holiday bonuses, year-end vendor payments, and other holiday expenses can lead to a major cash crunch for your business. And with holiday closings, you may not be able to generate much revenue over the holidays. Try to cover any expenses well in advance of the holidays and ramp up your collection efforts in the weeks before the holidays arrive.
6) Offer cash discounts to customers who prepay for orders. Clients who consistently pay in advance for goods and services are a lifeline for your business and deserve to be rewarded for their dedication to making early payments. Consider offering cash discounts or preferred customer status to prepaying customers.
7) Zero in on your largest accounts. Many businesses have a small number of accounts that generate the overwhelming majority of their revenue. If just one of these key accounts is habitually late with their payments, it can hinder your cash flow. Meet with your key accounts to reexamine their payment terms and discuss steps to avoid future late payments.
8) Do not be afraid to use the company credit card. You may be reluctant to use a credit card to pay bills. However, using a credit card can buy you a little extra time at little cost as long as you pay your credit card bill in full every month.
9) Become an expert in collections. Ramping up your collections efforts is an effective way to increase your cash flow. If you lack the internal resources necessary to collect payments from customers, consider outsourcing your collections to a third party.
10) Seek the input of a cash management expert. The best way to maintain a healthy cash flow is to enlist the support of a financial consulting firm. Since 1974, Apollo Consulting has been helping businesses develop cash flow strategies to facilitate growth and preparation for emergencies. We invite you to contact us to find out how we can help you improve your cash management. We look forward to hearing from you!
There isn’t anything more stressful than maintaining cash flow in a business, and you likely understand this well since you’ve been in operation. Statistics show most business bankruptcies occur due to not paying attention to cash flow or improper cash management. If you think you have everything under control when it comes to your finances, you might want to take a second look.
What can you do, though, when you start experiencing slowdowns in your business? Every business is going to go through times when sales stagnate. You may depend on seasonal sales to bring in most of your annual profits.
Many strategies exist to help you keep cash coming in. Some of them might require a little creativity to make them work. Others are just plain practical.
Create a Recurring Cash Flow Forecast
You’ll find evidence that when you create a cash flow forecast, your business survival rate goes up exponentially. Many sources say these reports move your success rate up 80%, compared to much less if you do no forecasting.
Using software like QuickBooks can help you create a cash flow report so you know what’s coming in and where you need to spend. Even a simple Excel spreadsheet can give you an effective report thanks to a cash flow feature built into the software.
The general rule is, if you’re already having trouble with cash flow, the more detailed your reports should become. Budgeting needs more focus so you spend your money in areas where it’s most needed.
Speeding Up Your Payment System
One practical way to keep your cash flow going is to reorganize when you expect payments from customers. You shouldn’t have to wait over two months to receive a payment. Try to set up a plan where you request invoice payments within 30 days.
Set up a dedicated team to contact customers about late payments. However, think of ways to make payments easier for the customer, including mobile payment systems. When you give incentives to paying earlier (like discounts), you’ll start seeing more cash coming in.
Slow Down Spending on Assets
Working out cash flow reports also lets you see how much you’re spending on outflows. Is it better to hold off on doing any asset investments at the moment? What about negotiating payment terms with your suppliers?
You may also want to minimize your inventory if you have enough to get by until business picks up. If you have enough credit available, perhaps paying for any assets by credit can help you keep cash available for a few months.
Always Have an Alternate Plan
As Entrepreneur notes, you should always have a Plan B in business during times of disaster. With the world being more volatile today, a lot of things could happen to affect your cash flow. During a natural disaster, you may have to shut down for days or weeks, placing you in financial jeopardy.
Whether it’s a reliable form of credit or cash you have stored away in an alternate account, always have a backup source of operational funds. Don’t always rely on loans either since a cash flow problem could prevent you from getting a large loan.
Analyzing Your Cash Flow Problems Through Metrics
It pays to use as many metrics as you can to analyze where your biggest financial problems are. Through daily analysis, you can scope out why you’re having cash flow issues if you’re not sure what’s going on.
When you have money coming in and going out every day, take the time to study your analytics every day so you don’t miss a single detail.
Contact us at Apollo Consulting to use our services to help you create better cash management strategies for each ensuing year.