In the past year, I have spoken to a number of different audiences on Managing cash flow. In the course of my work as a mentor on Bank of Ireland’s Enterprise Builder Programme, it is clear that managing cash remains an issue for many companies. So here are the key points from the presentations that I made.

• Prepare Plans and Forecasts
  These help you to understand what is coming up. They identify early on any overall problems and any “lumpiness” in your cashflow. You should be clear about your key assumptions – these will include Activity levels/Collection and payment times/Once off investments etc. You should also determine how much to put aside for tax, annual payments such as insurance etc
• Prepare a Rolling 6-week forecast.
  This will be similar to the annual forecast but will be working in smaller time intervals. Watch for weeks where you might be hitting up against your overdraft limits. This rolling 6-week forecast highlight possible breaches of your limits and gives you a chance to do something about it.
• Choose your customers
  Remember that you don’t have to take everyone. A customer that does not pay or a customer that costs too much to services is not worth it. You should have some a process for evaluating prospective customers. This would consider factors such as their payment history, their profitability, the quality of interactions with them (do you like dealing with them?), are there ongoing issues (returns, hidden costs etc). Check their credit rating.
• Be clear about your credit terms and stick to them.
  Your customers should know exactly when you expect payment and you should enforce your terms. Your terms with include the timing of payment and the maximum amount that you extend to any customer. It is much easier to set and enforce these from the start than it is to try to tighten up with an existing customer. Put on hold, those customers who are not compliant with your terms – whether this be relating to the time or the total amount. Consider asking for deposits or stage payments – this is more appropriate for some sectors than others.
• Have a process for invoicingis
• Invoice in a timely way. Know who/where to send invoice. Before invoicing, ring the customer to ask if everything is ok – they can’t come back with issues later. Consider if you will need Proof of Delivery – do you have it?
• Have a reliable collection routine.
  Before payment is due, send out a reminder. Have a standard defined procedure for follow up or escalating overdue payments. Send out statements – Some customers only pay on statements.
• Manage Cash Tied Up
  Many businesses overlook the amount of cash that can be tied up unnecessarily. Review your Stock Levels , your Debtors and your Prepayments. Are you paying too early with some of your suppliers? Do you have clear rules for purchasing stock – is there a logic to these? Do you take Credit where you can (and where it saves you)?
• Control Your Expenditure
  Remember that you have most control at rhe start of the Purchase to Pay process. Do you have a Purchase Order (PO) authorisation process? Review all costs and consider whether they are really necessary and that you are getting best prices. Consider Asset Finance for computers, vehicles, plant & machinery
• Working with the bank
  Keep your bank manager informed. This demonstrates that you are in control and devleops confidence in you and your business. Remember that when there are some signs of problems, lack of communication from you is the single thing that worries them most.
• Managing Shortfalls
  Become aware of shortfalls as soon as possible. Understand whether they are temporary or longer. Look at all the options to overcome the difficulties. Talk to your bank. Talk to suppliers. Consider invoice factoring/discounting. Offer early payment incentives to customers. Careful payment of bills

So overall then the message can be summarised as follows. Understand and Plan – aim for early warning of issues. Be proactive – choose customers, set credit limits, have process. Review business for cash tied up. Manage your bank manager. This will definitely help in managing cash better. You can gauge yourself by going through this article.

As always, if you have any comments or questions please email me – jim (at) accountsplus (dot) ie.