Manage cash flow with a weekly forecast of cash in and out, then speed up collections, cut slow-moving stock and agree workable supplier terms. A company can fail while profitable if its cash runs out before the profit arrives.
Step by step
- 1
A 13-week cash forecast
A table of the current balance and expected receipts and payments week by week, updated every week so it shows a shortfall before it happens.
- 2
Speed up collections
Ask for a deposit, invoice on the day of delivery rather than at month end, and follow up on receivables with a weekly aging report.
- 3
Free the cash tied up in stock
Identify slow-moving items and clear them, and order quantities based on your actual sales rate, not on volume discounts alone.
- 4
Organize your payments
Negotiate supplier terms close to the time it takes you to collect from customers, and pay on the agreed date, because paying early without a discount uses up your cash and paying late damages the relationship.
- 5
Calculate your cash cycle
Days of inventory plus days to collect minus days to pay suppliers. The shorter the cycle, the less working capital you need.
- 6
A reserve and a separate account
Keep a reserve that covers fixed expenses for several months, and do not draw on the company account for personal spending beyond a set salary.
Expanding credit sales to grow revenue without working out the effect on cash means the company finances its customers with its own money, and it can run into trouble in its best sales month ever.
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