Most businesses unless well capitalized, rely on some form of cash flow projection analysis, especially if their business reflects seasonality of sales/expenses and therefore irregular cashflows. When the cash flow projection shows negative flows, what are some solutions both for short term and more business process driven ways to address? Here are 10 ideas:
Extended terms with critical vendors – may be a more effective solution than simply stretching all accounts payable. Working with critical, large vendors and obtaining extended terms could help extend cash flows. After all, these vendors have a vested interest their customers’ success, too.
Establish follow up processes on large customer invoices – Do not wait until invoice dates for follow-up, ensure that these critical payments are set to pay on their due dates from the customers by checking well before invoice due dates to fix issues early to ensure timely accounts receivable payments.
Defer capital expenditure projects – If the project cannot be deferred then lease, even if the buy v. lease analysis shows a purchase is more favorable in the long term – the business needs cash today to get to the long term.
Review credit terms – Reduce credit limits on slow paying customers to increase cash turnover or get up- front payments with orders to limit the cash investment in accounts receivable.
New customers – run credit checks on all new larger orders to ensure the likeihood of more timely payment.
Commissions – restructure commissions based on sales collections, not on sales generated to match with cash flows.
Commission Programs – restructure them to encourage the sales of higher margin products and services and therefore, higher cash flows.
Slow Moving Inventories – liquidate slow moving inventory for any cash flow and to free up floor space for inventory that does turn and generate cash flows.
Inventory Turnover – analyze the inventory turns by item and look for ways to reduce any additions to stock of any of the slow movers.
Leases – attempt to renegotiate lease payments and extend repayment terms into the future.