Good credit control does not guarantee good cash flow
By Peter Aves
We all know "Cash is King" and you may have an effective credit control team, but is the operational part of your business equally effective when it comes to maximising cash flow and controlling working capital? Are the operational and accounting functions in your business working together? Ensuring that every employee understands the basics of cash flow is an absolutely essential element in the effective management of your business.
Even in a buoyant financial climate, there are always customers who are poor payers and need little excuse to find a reason to pay late. Every business has them. In the current difficult market, everyone is watching their cash, and you cannot afford to give any of your customers even the slightest reason not to pay on time. You might have the best possible credit control team, but if the operational part of your business is not delivering in full, on time, all the time, then your customers will respond by not paying on time, or at all.
Industry is littered with the remains of companies which have traded "profitably", but run out of ready cash to the point where the bank or the shareholders are not prepared to put any more cash into the business. This sort of failure is more often the result of poor operational management and forward planning than it is of external factors over which a company has little control.
It is vital to understand that every employee - even down to the part-time filing clerk - has an effect, no matter how indirectly, on your cash flow. Accuracy and constant attention to detail in design, marketing, order processing, packing, despatch and invoicing are all vital to good cash flow. Does everyone understand what "debtor days" are? Have they even heard of the term? Do they also know about creditor days and stock turnover and their effect on cash and working capital? To have maximum effect, the processes that manage all these functions and pull them together need to be up to "best practise" standards. It's about communication and vigilance which in turn comes from having the right systems and management, and everyone "buying in" to it.
EMC has a wealth of experience in this field. If you think your cash management could be better, let us help you with a review of where you are now so that we can help you get to where you should be. A small improvement in process will result in a much better cash flow. When times are better, you may then also have the cash to invest in growing the business rather than asking the bank!
January 2010
