5 ways to improve cash flow inc

11/3/2016 5 Ways to Improve Cash Flow | Inc.com
http://www.inc.com/guides/2010/06/how-to-improve-cash-flow.html 1/7
ACCOUNTING
5 Ways to Improve Cash Flow
If you're looking for a quick fix for cash-flow problems, good luck. But if you're serious about making strategic changes,
read on.
CREDIT: Getty Images
With revenue gains still something of a pipe dream for most businesses, owners are looking for ways to squeeze as much cash flow
as possible out of their existing operations.
It's a simple enough formula: collect your receivables as fast as possible and slow down your payables without jeopardizing your
relationship with suppliers.
Still, some companies are much better at it than others: Top-performing companies collected from customers 17 days more quickly
than typical companies in 2009 and stretched payables by an additional 10 days, according to REL, a consultancy focused on
improving cash flow and working capital and a division of the Hackett Group.
If you're just looking for a quick fix, you can extend your accounts payable period by using a credit card to pay suppliers. With a
check, you only get a day or two of float - or the time between when someone deposits your check and when the amount is removed
from your account. But if you pay with a credit card, your vendor gets paid and you don't have to pay the card down for several more
weeks. Of course, you don't want to charge more than you can pay off in a month or you'll get slapped with some hefty interest
charges.
That's a simple - and fairly short-sighted - solution. But if you're serious about improving cash flow, here are five tips.
Editor's Note: Looking for loan solutions for your business? If you would like information to help you choose the one that's right for you, use the
BY MATT QUINN


Editor's Note: Looking for loan solutions for your business? If you would like information to help you choose the one that's right for you, use the
questionnaire below to have our partner, BuyerZone, provide you with information for free:
1. Perform a Good Forecast
The first step is to get a good grip on where you cash flow currently stands and where it is likely to go in the future. Quite often small
and mid-sized businesses aren't prepared for all the costs associated with growing quickly. More sales could mean more employees
and a bigger inventory. That's money going out upfront. But when will it come back? "Too many companies get blindsided by
unfavorable movements in cash flow that are predictable if they really sat down and thought through it," says Paul LaRock, a
principal at consultancy Treasury Strategies in Chicago.
The forecast could be as simple as paper and pencil for the smallest company, but others will want to put together a more formal
cash flow projection. A rolling 12-month forecast is the best practice for most companies. If you start mapping things out week by
week, you'll see where to expect surges in expenses ahead of your big sales season and where several payments might come due all
at once.
Dig Deeper: Plug Those Cash-Flow Leaks
2. Evaluate Your Terms
If you're having trouble with cash flow, check to see how well your customer terms and supplier terms are balanced, recommends
Analisa DeHaro, an associate principal with REL.
"If your average payable is 24 days and your average receivable is 47 days, that's 23 days that you have to float, which means you
have to go out and get working capital," she says.
You'll want to look at the terms you're offering to customers and evaluate if they work for you and how your customers are
performing to those terms. With suppliers, you want to see how their terms stack up against others in the marketplace. You might
also discover that you're missing out on a discount if you were to pay even earlier. That might run counter to your goal of shortening
that receivables-payables gap, but the money involved might be worth it.
Dig Deeper: How to Set Up Accounts Receivable
3. Enforce Payment Discipline
In order to shorten your receivables period, you'll need to have a good collection system in place. DeHaro says you should ask
yourself:
How long is it taking to get paid?
What is your collections activity?
Are you getting the right level of contact with your customers?
Are you identifying disputes fast enough?
When you identify disputes, what is your policy for getting them resolved?
Keep in mind that these are not only ways to improve how quickly you get paid, but your customer service as well.
NEXT ▷
What type of business financing are you interested in
obtaining at this time?
Business loan
Cash advance against credit
card income
Loan for equipment purchase
Equipment lease
Commercial mortgage loan

Keep in mind that these are not only ways to improve how quickly you get paid, but your customer service as well.
"If you buy something and something is wrong with the invoice, and it takes them a long time to resolve it, it makes you have a little
angst and make them seem more difficult to work with," DeHaro observes.
And keeping on top of your problem children payers isn't just about looking at the 90-days outstanding column in your account
receivables, but even your 61-days and 31-days column, says LaRock. "You can't let things ride the extra few weeks like you could in
a healthy economy," he says.
Enforcing payment discipline should also be part of your payables operations. A sloppy AP department might miss out on discounts
and habitually paying late could hurt you the next time a contract comes up for renewal. By paying on time, you can build a
relationship and negotiate for future discounts or payment terms better suited to your business cycle.
Dig Deeper: Tips on Streamlining Accounts Payable
4. Segment Your Customers, Suppliers and Inventory
You probably won't get too far if you try to tackle your cash flow as a whole. You're better off segmenting suppliers, customers and
inventory.
When looking at your inventory, you want to observe the volatility of sales. Do you have too much cash tied up in products that sell
only sporadically? Would that money be better off used in your "bread and butter" items that turnover more quickly? "You might
end up having tons of money tied up in inventory without actually meeting your customers' needs," says DeHaro.
When breaking down your suppliers, you want to separate them into your regular suppliers versus your one-off buys. With your
strategic suppliers, you'll have a better chance of negotiating better terms and discounts.
Perhaps most importantly, you should take a close look at your customers. Who really is a "key customer?" Just because your sales
department thinks they're important - i.e. they generate a lot of revenue - that doesn't mean it's a profitable account. Norm Brodsky
wrote last year about one business whose biggest account was actually a big money loser, ultimately adding to its cash flow woes.
The solution isn't necessarily to cut that account, but to approach the customer with the situation.
You might also find that your biggest customers are your worst payers. You'll want to put together a strategy on how to approach
them. If a customer typically pays in 60 days, you should gently reach out to it after 30. Additionally, there might be a good reason
why the client ends up paying so late, like frequent disputes on invoices. "Once you identify the problem, you can fix it and present a
better service to your client," DeHaro says.
Dig Deeper: How to Get Customers to Pay Upfront
5. Make it a Companywide Priority
If improving cash flow is a priority, make sure all of your employees understand that. Remember that your employees will be
motivated by the targets you set for them. Obviously, collectors should have collection targets. But even your sales staff should be
on board. If a salesperson only has a revenue goal, he or she will work to meet it, regardless of whether the invoices are paid on time
or in full. Instead, institute a policy where, if something is written off, the revenue is backed out of commissions.
"If employees have a target, that's what they focus on," DeHaro says. "Make sure management teams support working capital
objectives."
FROM AROUND THE WEB
Jamnagar Girls Are Using
This Crazy Method To Get
5 Shades Fairer In 2 Mins!
Dr. Ankur Walia
These Secrets About The
Obama Sisters Will
Surprise You
Celebs Spot
After Loosing 200LBS
Rebel Wilson Actually
Looks Gorgeous!
Detonate.com
Why Donald Trump
Avoids Talking About His
Daughter Tiffany!
Detonate.com
Ads by Revcontent
ADVERTISEMENT
NEXT
ARTICLE

LEAD
The Chicago Cubs Just Won the Best World Series Ever (And Taught Us All One
Major Lesson)
It was a historic series that ended perfectly. Here's the lesson for you.
JustinJBariso @
CREDIT: Getty Images
A seven game series. A historic Game 7. A tie game after a full nine innings played, with neither team refusing to go away.
Was this the best world series we've ever seen? You certainly couldn't have written the ending any better.
The world of major league baseball is brutal. If success is measured with a championship (as it is in most professional sports), there
is only one winner every year, with 29 losers.
For the past 108 years, the Cubs have been one of the losers. But this morning, for the first time since 1908, the following words are
true:
The Chicago Cubs won the World Series.
My heart goes out to the Cleveland Indians and their fans. They fought, and fought hard--and now they've taken over the title for
"the team with the longest drought without winning the World Series."
But today, we must give credit where credit is due.
Why?
Because...
The Cubs could've said: "Look, maybe we should just embrace a different role."
The team's become known as "the lovable losers" through the years. Who needs to win? There's a certain charm to it, after all.
Instead, they said: "Forget charm. This is our year."
The Cubs could've said: "Oh man, what have we done?"
They hired a young upstart named Theo Epstein to run the show as team president, mainly because he led the Boston Red Sox out
BY JUSTIN BARISO
NEXT
ARTICLE

They hired a young upstart named Theo Epstein to run the show as team president, mainly because he led the Boston Red Sox out
of an 87-year drought and to their first championship (back in 2004).
But then, the Cubs finished last place in the division for Epstein's first three years with the team. This could have led to all sorts of
buyer's remorse.
Instead, they said: "We believe in this guy."
The following year (2015), the Cubs advanced to the National League Championship Series. Epstein re-signed with the club this year
with a five-year contract (estimated to be worth up to $50 million).
The Cubs could've said: "This is impossible. Maybe next year."
The team had fallen behind the Indians three games to one in the World Series. Cleveland had home field advantage, along with all
the momentum.
Instead, they said: "Nothing's impossible. We play our best with our backs to the wall."
Next thing you know, the Cubs had tied the series.
Cubs 3rd baseman Kris Bryant could have said: "I'm going to play it safe."
The Cubs were up 4-1 in the fifth inning, after all. Bryant had already run as hard as he could the previous inning to score, barely
beating out a hard throw and tag following Addison Russell's sacrifice fly. No need to push it now.
Instead, he said: "I'm gonna leave it all on the field."
After a line drive single from teammate Anthony Rizzo, Bryant hustled and scored, beating another throw to home.
39-year-old Cubs catcher David Ross, playing in his final game, could have said: "Man, I'm screwing up this game."
Normally a backup, Ross entered the game in the fifth inning to catch for Cubs pitcher Jon Lester. A series of costly mistakes led to
the Indians scoring two runs.
Instead, Ross said nothing. He simply went to work, getting one of those runs back when he smashed a homer of his own into
center field the next inning.
The Cubs could have said: "We're going to lose this game."
The team entered the eighth inning only needing six outs to become champions, and holding a solid three run lead. But before you
knew it, the Indians had clawed back and tied the game.
The cubs could have sensed the change in momentum. They could have gotten lost in misery or self-pity.
Their confidence could have evaporated as quickly as their lead.
Instead, they said: "No worries. We've got this."
The Cubs could have said: "Man, everything's working against us."
That's when a downpour halted the game for 15 minutes, giving both teams the chance to soak in the moment.
The Cubs could have let the pressure get to them: the weight of an entire city (and millions of fans around the world), weighing on
their shoulders.
Instead, they said: "Almost there, guys."
They followed up with two runs, taking an 8-6 lead.
Then came the bottom of the 10th inning.
The Cubs had that two run lead, but the Indians refused to die: A single by Indians outfielder Rajai Davis drove in a run by teammate
Brandon Guyer, making it 8-7.
With the home crowd fiercely cheering the Indians on, and the tying run already on base, the Cubs could have said: "Man, it's
slipping away."
Instead, they said: "One more out. Let's do this."
The Cubs got their out.
The rest is for the history books.
But here's the moral of the story, in case you missed it:
You could say any of these things the Cubs could have said.
NEXT
ARTICLE

Like this column? Sign up to subscribe to email alerts and you'll never miss a post.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
You could say any of these things the Cubs could have said.
Don't.
Why?
Because success comes to those who never give up.
If you don't believe me...
Just ask the 2016 World Series champions.
PUBLISHED ON: NOV 3, 2016
FROM AROUND THE WEB
22 Secrets You Didn't
Know About The Obama
Sisters
Celebs Spot
Best Flipkart Coupons,
Offers: Upto 85% Off -
Steal the Deals
Desidime
Grab Ebay Coupons and
Discount Codes and Save
Upto 80% on This Diwali
Desidime
Generate A High-Quality
User Experience with
Revcontent
Revcontent
Ads by Revcontent
ADVERTISEMENT
NEXT
ARTICLE

5 ways to improve cash flow inc

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (20)

Recently uploaded

Recently uploaded (20)

5 ways to improve cash flow inc