Cash Management

By Moira Creedon 

In the SatNav note you headed off on a journey to an unknown destination across difficult terrain.

To do this you need a car with fuel in the tank and cash in your wallet for more fuel (in the various currencies you are likely to need) – and/–or a credit card giving you access to cash. You also want to know where you can stop for more fuel when you start to run out. This represents the cashflow management aspect of financial management in a business.

Raising Capital to Buy the Car

You need to raise the right amount of capital from the banks and shareholders to make the investment to have the equipment and other assets to deliver on your targets

You need to monitor the level of cash at all times and look ahead to see when you night run out of cash and where you might raise it – planning ahead on an up to date basis to see your cash position for the next 3 to 6 months.

Establish good links with your bank even if you don’t think you will need to borrow. A growth opportunity may arise that requires investment and you will be glad to have the links already in place to access the money if you choose to take up the opportunity to expand.

Keeping the Fuel Tank Locked – Minding the money

You need systems in place to make sure your people do not waste or embezzle the money.

Avoiding waste means having approval systems in place before people spend money – purchase orders with clear criteria for approval so a business rationale has to be presented for any expenditure over an agreed threshold.

Avoiding embezzlement means looking carefully at your company exposures and making sure you have systems in place to preempt fraud. For example are employees handling cash? Making payments? Making purchasing decisions? If so you need to make sure you have the right control systems in place to minimize risks

Chasing the money – collecting from customers

Chasing the money means making sure you get paid promptly by your clients. This means making sure invoicing is swift and accurate and that you have good systems in place to monitor and settle outstanding debtors. You may be able to get clients to pay by direct debit depending on your industry. If not make sure you have clear policies and procedures in place on dealing with slow payment.

Paying your suppliers

Finally, if at all possible pay your suppliers on time. Paying late is NOT free money. It impacts your credit rating which will push up the cost of funding, severely damages your relations with suppliers and they are quite likely to either refuse to supply or push up price. You may also simply bankrupt some good suppliers who are not in a position to fund the delay.

If you do have to delay payment because of a short term liquidity problem, talk to your suppliers and agree a date for payment. This is far more likely to protect the relationship and saves wasting time on dozens of acrimonious phone calls to your accounts payable team.

This article is written and reproduced with the kind permission by Moira Creedon of Artemis Consulting