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Finding Cash - Where you least expect it... - Jun 15, 2009

Posted by: David Kirkup in Articles

Right now, cash is your most important asset. It's a good time to tighten up your accounts receivable policies to generate more cash. There are several good reasons for this.

For one Accounts Receivable are probably your single largest source and use of cash. They are a source when your customer pays, but they tie up precious cash until that happy moment - which is why rapidly increasing sales can sometimes deal a corporate deathblow. Sound policies ensure your cash cycle - the time for your sales to generate cash to pay your vendors - is minimized.

Cleaning up your AR process also pays other dividends. Your company is only as strong and valuable as your financial infrastructure. If the structure is weak, then you have serious business risks, and the value that outsiders will place on your company is impaired. In addition, when you need to raise additional financing - your AR are likely a key source of collateral. Having well documented and efficient AR procedures will expedite the process of selling individual receivables, or negotiating a collateralized bank loan. Here's a checklist:

Establish written credit policies - state expected days for collection, and what actions need to be taken when a customer is late. Don't wait.
Identify a "Credit Manager" who will make credit and collection decisions and take prompt action on delinquent customers.
Print regular Aging reports and use them. Make notes on follow up. Be aggressive. Have weekly meetings with your Credit Manager and review the status of open accounts.
Have all customers complete a Credit Application. Company fortunes are changing fast, so stay on top of this. Get personal guarantees.
Use Dunn & Bradstreet to get current customer info before shipping. Have D&B flag material changes in customer fortunes.
Mail invoices on service date and specify the due date, or customers will pay from receipt.
Use email billing and payment by credit card to minimize outstandings.
Mail statements monthly - its shows how much is owed, and helps keep AR correct. It's also good for developing internal control for your business.
Have a Collection Agency on speed dial. Don't wait to use them.
Make AR management a priority, and be a squeaky wheel. Many companies are juggling cash flow right now, make sure you stay at the top of their list. Many times, Customers will delay payments to other Vendors or Suppliers, if they are low on cash, to avert receiving a collection call from you. A well run Company knows the importance of their Accounts Receivable in good times and bad.

B2B CFO® offers seasoned, highly experienced part-time CFOs, so there's no excuse to run your company with blinders on.

In a sea of economic red ink, many of B2B CFO®'s clients continue to add employees and grow sales, while having access to lines of credit, and developing company value. Call David Kirkup, your B2B CFO®, for more information and a free company evaluation on 770 845 6897.