1. Strategies for Managing Cash Flow
Cash Flow is the critical lifeblood of any business and is required for investment and growth. In
order to generate cash, a business must efficiently and effectively manage the cash flow activities.
These activities include accelerating cash inflows, delaying cash outflows, investing surplus cash,
borrowing cash at favorable terms and maintaining an optimal level of cash. Here are a few
recommendations you can use to manage your business cash flows more effectively:
Address Any Immediate Cash Needs
Organize financial information
Forecast cash flows
Identify problem areas
Prioritize collections and payables
Establish time frames and goals for cash management
Strengthen business relationships
Collect Accounts Receivable
Issue invoices immediately after the sale, rather than waiting until the end of the month
Offer discounts to customers who pay their bills quickly or offer discounts for prepayments only
Always deposit checks the same day they are received
Pick-up large checks in person
Ask customers to make deposit payments at the time orders are taken
Issue monthly statements to remind customers of amounts owed
Use aging reports to monitor and manage and project cash flow on an ongoing basis
Identify and pursue slow-paying customers
Send collection letters at 30/45/60 days
Institute a policy of cash on delivery (C.O.D.) as an alternative to refusing to do business with
slow-paying customers
Take immediate action when a customer becomes delinquent
Impose a finance charge on customers that are seriously delinquent
Evaluate credit policies
Evaluate the financial soundness of customers before extending credit
Require credit checks on all new noncash customers
Identify and evaluate accelerating techniques for collecting your cash, such as lockbox services,
pre-authorized checks and concentration banking
Be aware that the U.S. Postal Service’s recent decision to move first-class mail to a two-to-three-
day standard will slow down bill collection for many companies
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2. Strategies for Managing Cash Flow (continued)
Manage Creditors
Communicate with creditors; if you need to delay a payment, you'll need their trust
Take advantage of creditor payment terms; if a payment is due in 30 days, don't pay it in 15 days
Utilize electronic funds transfer to make payments on the last day they are due; this will allow
you to retain use of your funds as long as possible
Carefully evaluate vendor payment discounts; these can amount to expensive loans to your
suppliers, or provide you with an opportunity to reduce costs
When choosing suppliers, evaluate flexible payment terms vs. low price
Ask vendors / suppliers for trade discounts
Renegotiate existing loan terms
Develop multiple sources of supply
Consolidate debt
Develop a cash flow forecast before agreeing to any payment plan
Prioritize payments — e.g., IRS, bank, landlord, major suppliers
Negotiate partial payments, if possible
Past due taxes - contact federal and state agencies immediately; respond to tax collection letters
promptly
Review Pricing
Review and evaluate pricing strategies
Consider revising your prices
Charge extra for emergencies, deliveries and other value-added services
Reduce or eliminate discounts and giveaways
Manage and Reduce Costs
Analyze expense line items and review largest expenditures first; look for opportunities to
reduce costs
Evaluate marketing and advertising program ROIs; consider lower cost programs
Negotiate a rent reduction or restructure to allow a short abatement period
Rent out unused space
Reduce personnel expenses — e.g., hire part-time, use interns, outsource, eliminate overtime
Reduce personal expenditures — e.g., travel & entertainment
Reduce or eliminate additional capital expenditures – e.g., computers, furniture, vehicles, etc.
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3. Strategies for Managing Cash Flow (continued)
Manage Inventory
Review inventory levels monthly
Consider liquidating products older than 90 days
Sell outdated items at cost, if possible
Only restock faster-selling items
Consider drop shipping and avoid inventory
Consider using “Just-In-Time” ordering processes, if possible
Establish controls to eliminate inventory shrinkage
Manage Capital and Financing
Reduce or delay purchases of fixed assets
Borrow money at more favorable terms
Refinance or restructure debt
Sell assets
Increase equity in the business
Sell the business/merge with a competitor
Review leases on buildings & equipment; negotiate more favorable terms
Evaluate and select a bank that best serves your needs: services, investments, policies, terms &
conditions, loan covenants, etc.
Accurate, Timely Accounting and Controls
Review financial statements regularly in order to make timely management decisions
Prepare and review a cash flow forecast on a regular basis
Prepare cash forecasts for shorter periods of time (weekly or daily) if cash flows are tight
Establish appropriate financial controls
Enforce cash handling policies
Reconcile accounts on a regular basis
Prevent opportunities for embezzlement
Divide financial responsibilities and functions – establish a separation of duties
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