Cash is the lifeblood of a business. By this I simply mean, no cash, no business. That being said, a constant and relentless focus on cash is never a waste of time. Any area of business that directly affects cash must receive intense attention. Focus on the following three areas for a stronger cash position.
- Accounts Receivable– A simple but effective way to keep this number lower and cash higher is to monitor it on at least a weekly basis, no exceptions. Make someone accountable to review the overdue accounts list, make the necessary collection calls, send the overdue notices, and negotiate for quicker payment. Receivables that receive constant, consistent attention will stay under control.
- Inventory– Have the software system in place that can measure accurately the correct amount of inventory in the production cycle. Many companies have a tremendous amount of cash tied up in inventory needlessly. You should know the average days in inventory and average turns and be making corrections when these measurements are out of line.
- Accounts Payable– Do not pay invoices before they are due unless an adequate discount is offered. Know the average days payable and the target.
By focusing constant attention on these three areas your cash position will improve and remain solid.