Prime Strategies

Tips on Cash Flow Management


Accounts Receivable
Objective: Receive payment as soon as possible.

1. Set policies for granting credit and how the decision will be made.
  • Check credit history and references.
  • Start with a low maximum.
  • Be alert to big companies that suddenly offer big orders, but want credit.


    • 2. Set up a tracking and aging system.
  • Bill on a timely basis.
  • Offer incentives for timely payment.
  • Contact customer at specified periods after billing.
  • Get commitment regarding payment and break up payments if needed.
  • Discontinue service to anyone with receivables overdue more than 30 days.
  • Begin collection activities at 60 days overdue.


    • Accounts Payable
    Objective: Defer payment whenever possible (or until cash is available to cover).

    1. Time payments according to their due dates.
  • Weekly payments are adequate.
  • Consider bi-weekly (alternately with payroll) if that helps your cash situation.

    • 2. Avoid interest charges whenever possible.

  • Pay bills that incur interest charges first.
  • Contact suppliers to work out payment arrangements to avoid extra charges.

    • 3. Inform your staff when payments are behind with a specific supplier to avoid strained or miscommunications.

    Inventory
    Objective: Minimize operating capital in inventory.

    1. Study your business cycle to determine inventory needs.
    2. Do the necessary research and plan, plan, plan.
    3. Set policies regarding inventory aging and disposition.
    4. Pre-sell whenever possible.

    General Cash Management
    Objective: Maximize use of operating cash.

    1. Put temporarily unneeded cash in a money market or other interest bearing account.
    2. Alternatively, use unneeded cash to pay down interest-bearing loans.
    3. In a cash crisis, notify suppliers and creditors before they contact you. Make a reasonable request for extension and provide a plan for recovery.
    4. Request credit from suppliers whenever possible to help defer up-front costs.

    Capital Planning
    Objective: Obtain additional cash (or equivalents) as needed.

    1. Maintain clear, accurate records with financial statements on a timely basis.
    2. Determine what additional capital will be needed well in advance.
    3. Develop and maintain a "capital friendly" network.
    4. Obtain as much information as possible from potential investors or lenders prior to preparing your plan.
    5. Start your capital-seeking plan with the exit strategy in mind.
    6. Ask for more capital than you think you'll need. You don't want to have to go through the process again if you find you need more.