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| 9
Points for Managing the Cash |
- Forecast
your cash inflows and outflows. Most are very predictable.
By modeling projected cash flow, potential problems
can be identified in advance and dealt with. For instance,
a new line of credit may need to be established to build
up inventories before the holiday season or a major
expenditure may need to be delayed.
- Don't
just negotiate price with suppliers, try to negotiate
liberal payment terms. You may be able to get the supplier
to basically finance your inventory or even sell to
you on consignment.
- Conversely,
with customers, make prompt payment part of the negotiation
along with price. By explicitly discussing payment terms
up front, you can establish an expectation of prompt
payment in the customer's mind.
- Speed
up your billing cycle. It may even be feasible to bill
in advance of delivery. Billing more promptly will have
a direct impact on accounts receivable days outstanding.
- Speed
up collections by following up promptly and assertively
on past-due balances. If feasible, encourage the use
of credit cards instead of keeping open accounts. Resolve
customer-billing disputes as quickly as possible to
minimize slow payments, and charge interest on past-due
balances.
- Eliminate
cash advances. Issue company purchasing or credit cards
to employees who travel or make reimbursable purchases.
Having clear policies on allowable expenditures and
requiring detailed receipts will minimize inappropriate
spending and fraud.
- Use
long-term financing to pay for large capital items or
lease them. While there is certainly a cost to this
strategy, it spreads the cash outlay over a long period
of time.
- Keep
inventories at the lowest possible level. It not only
conserves cash, it can boost profits by cutting finance
charges, lowering the risk of write-downs due to obsolescence,
and reducing storage costs.
- Perform
credit checks on new customers and even periodically
on established customers. Large, new customers can be
a particular risk because of the extraordinary expenditures
that often need be made before the goods or services
are delivered and payment is received. With these customers,
go beyond a simple credit check. Dun & Bradstreet
reports, which are references from other companies that
do business with them, can be very useful.
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