How Can I Stretch My Company's Cash Further?

There are many ways to make sure that you are using your company's resources in the most efficient way possible. Ask yourself the following questions regarding your accounts receivable, accounts payable, inventory, and long-term debt:

Accounts Receivable

• What is my company's receivables policy? (e.g., due in 30days)

• What is my actual average collection time on my receivables?

• Is there any penalty for my customers for paying late?

• Is there any incentive for them to pay early?

• Are my receivable and collection policies clear to my customers?

• Do I follow up regularly with overdue accounts?

• Do I make it easy or difficult for my customers to pay?

Many small businesses are astonished to find that their actual collection time bears no relation to their official accounts receivable policies. Not collecting receivables on time is one of the biggest drags on cash flow for a business. Make it easy for your customers to pay you by taking the following steps:

• Offer a discount for early payment.

• Charge interest on overdue accounts.

• Produce monthly receivable statements for your customers and follow up on them.

• Accept as many forms of payment as you can: cash, check, debit cards, and credit cards. The increase in the speed of payment will more than offset the costs of accepting credit and debit cards. You may also attract new customers.

Accounts Payable

• Do I have a good tracking system for my payables?

• Am I chronically paying suppliers late and having to pay penalties?

• Am I paying too early and not taking advantage of my suppliers' credit terms?

• Do I know how much money I will have to put aside at any given time to pay my debts?

Having a good tracking system is critical for cash management. It allows you to know your upcoming cash requirements at any point in time. Take full advantage of your suppliers' credit terms but be certain that you're not getting zinged with late charges and interest.

 

Inventory

• How long does it take me to sell my inventory?

• Do I buy inventory items that become obsolete or unsaleable before I can sell them?

• How long does it take between ordering and receiving an inventory item?

Keeping and warehousing inventory can be very expensive, especially when market conditions are continually changing and you risk having a warehouse full of obsolete product. Keep inventory levels to a minimum and order as you need product. Be careful, however, that you are not inconveniencing your customers by making them wait while you order product.