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It’s tough doing business in today’s difficult environment. The cost of fuel is slowly rising once again. Interest rates are also trending in the wrong direction. Wall Street creates massive pressure to increase shareholder value. Surprisingly, more companies need to begin taking steps to effectively manage cash flow.
Effectively managing working capital is a fantastic way to measure a company’s financial and operational effectiveness and efficiency. The better condition your working capital, the better off your company is. And it also shows that you are focusing on developing your business at its core.
To learn how to effectively manage your company’s working capital, please pay attention to the following tips.
5 Do’s and Don’ts of Effective Cash Management
1. Education
Education is crucial to cash management success. Getting your customers to pay their invoices on time is only one way to maintain your working capital. Supplier payment delays are another. And keeping lean levels of available stock will also allow you to have more cash on hand.
The benefits of working capital are obvious to many business owners. Educate yourself and your staff about the intricacies of your business and you’ll find ways to improve company cash management along the way.
2. Dispute Management
Put dispute management protocols in place. Do you have multiple past-due accounts deteriorating your current cash flow? If you put protocols in place, you’ll know the necessary steps that need to be taken in order to collect money that is past-due.
Remember, when all else fails, a collections agency can pick up where you left off and hopefully collect past-due payments that seem virtually noncollectable at this point.
3. Payment Agreements
Come to formal payment agreements with customers and suppliers. When you enter into an agreement with a customer or a supplier, this agreement should be formal and the payment terms should be known by all parties. Put it in writing in the form of a contract, and institute penalties for all parties if payment terms aren’t being met according to this agreement.
As an example, if you grant Net 30 terms to one of your customers and 31 days have passed and you still haven’t received the payment, you can now start charging your customer interest for every day that they do not pay the outstanding invoice. This is one example of many potential ways to implement penalties.
Not only will you receive payments quicker because your customers will prefer to avoid penalties, but it will also help prevent potential cash flow problems.
4. Collections Procedures
Implement a set of collections procedures. Many companies often avoid attempting to collect their payments after they’ve sent their clients an invoice. This is one of the worst mistakes that you can make if you’re trying to keep company cash flow intact.
Put together a set of collections procedures and implement them when necessary.
5. Supplier Relations
Treat your suppliers the same way you want to be treated by your customers. If your suppliers have certain payment terms that you’ve agreed to, make sure you honor those payment terms every step of the way. You reap what you sow in this life. So if you’re constantly late paying your suppliers, karma will have its revenge and your customers will continue to pay you late, too.
Please use this information. It will greatly help you improve the availability of your company’s working capital.
Great post, thanks for sharing!