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SUGGESTIONS TO INCREASING CASH-FLOW
Sponsored by Nationwide Transport Finance
Cash-flow, when used in various financial environments, can be defined in many different ways.
For the business which is "fixed asset based", or where land, buildings, manufacturing equipment or inventory predominates their assets, cash-flow means having sufficient net income after taxes to cover debt service.
On the other hand, companies that do not require dedication to large fixed assets to survive in their industry use current assets to derive cash-flow and, instead, define cash-flow in relation to when cash is received versus when it needs to be expended. From the date a receivable is collected to the date cash was to be expended to generate the receivable would be the company's cash-flow. The faster cash is collected, the less energy or other resources need to be expended or sought to fill the void.
Expanding upon the latter definition, a few suggestions are offered to assist businesses in accelerating the receipt of cash and, thusly, increase a firm's cash-flow.
Causes for slow cash-flow cover a variety of reasons - the most common is extending credit to a debtor who is an historically slow pay. The solution to this situation is an effective credit department with an objective, consistent policy whose decisions are clear and backed by management.
Paying attention and making sure the sales, credit, and accounting departments are speaking to each other is the most effective way to get the details correct from the initial order and to insure that you really want to deal with the customer if their credit capacity and prior pay history is weak, marginal, or erratic.
However, improperly completed billings and incomplete paperwork accompanying the bill to the debtor for payment can also slow down the process of getting a bill through an accounts payable department.
Also, an incorrect billing address, the oversight of procuring a purchase order at time of service performance, or if there were problems encountered when performing the service, the billed party would expeditiously need to know of the problems so that a surprise is not encountered by a clerk in charge of processing the payment!
If the wrong product is put upon the invoice, or freight has not been added when it should, or if payment were to have been billed to the consignee versus the shipper, payment will more than likely be delayed.
If your credit partner is looking for an excuse to delay payment, incomplete or wrong documentation will inevitably slow your ability to collect cash in a timely manner.
If there are "product" or "service" complaints, it is up to the party presenting the product to the purchaser, or providing a service for the benefit of the shipper, to immediately resolve the dispute. Procrastinating the inevitable resolution of a problem further compounds the delay in payment process. The chances of reaching a dispute settlement as quickly as possible, on a basis that is fair to all, will be maximized if the problems are resolved as soon as proclaimed.
Protracted cash-flow can also be encountered because of personality conflicts.
Attempts to get to the bottom of a problem and work through the issues are impossible when people begin to yell, slam phones or use language that is unprofessional. Tempers get out-of-hand when either party looses respect for the other, and the issue of how the situation can be expeditiously mediated becomes an issue of "who is right"/"who is wrong", all due to lack of professional courtesy.
Improving cash-flow is, as can be seen, more than just the receipt of cash. It is a method of doing business behind the receipt of cash which is important. It is making certain that paperwork is detailed and complete. It is making certain that the people who work for you are knowledgeable , courteous, respectful, seek answers and are dedicated to bringing about solutions rather than creating roadblocks.
Business is people dealing with people. The collection of cash is the result of businesses having well-thought-out credit policies and people who are trained in all areas of your business, so that cash-flow can be maximized. There are no substitutes for a business making sure that all the details of its business are done properly including the training of its people, having the most up-to-date and best communications and accounting policies, and an ethos that says you will conduct business fairly and appropriately.
Finally, it must be your business credo that you will do all you can to serve your customers in ways that speak of respect for not only the individual, but of the process as well.
Author: David P. Carney
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