UK: Ten Tips On Cash Management

Last Updated: 27 June 2012

Cash is king. It really is – and don't let anyone else tell you different. Large companies can go under with full order books. Getting and maintaining tight control of incoming and outgoing cash is absolutely key to all businesses, whatever their size.

There are three main issues to consider:

  • cash management
  • debtor or creditor ratios
  • review of borrowing arrangements.

Now is the time to act, while your corporate "health" worries are still treatable. So follow the ten basic tips below.

  1. Don't wait until it's too late – start doing something now

    Cash is the lifeblood of any business. If it is haemorrhaging, find out which part of the business is the prime culprit and do something now!
  2. Cash is king, but make sure your staff know that too

    Do your staff realise how key cash is to the business? For example, are sales personnel aware that no sale is complete until the goods or services have been paid for? Do those responsible for procurement get alternative quotations? Do your accounts payment colleagues pay supplier invoices on their terms or to your terms?
  3. Keep your cash balance information up to date

    Both large and small business accounting software packages have excellent cash management tools. Upgrading to the latest version can make an immediate impact on cash management – not least by reducing overtime in the accounts department.

    Companies that use large systems are often at fault because the accounts department does not keep senior line managers updated on the impacts on cash of their areas of the business.

    Even the most competent managers and the most successful businesses are vulnerable if cash balance information is out of date.
  4. Keep your purchase and sales ledgers up to date

    Business people will often say "that doesn't apply to us". However, companies both large and small can improve in this area by looking at their internal processes. They can often knock days off the time taken to process purchase and sales data, thereby improving their projected cash flow knowledge.
  5. Review and audit your processes regularly

    Are the processes you think are in place running as they should? When did you last have a review? How often do you receive a print-out showing your debtor and creditor days and ratios? When did you last read such a report if you get it?
  6. Knowing the bank balance is not managing your cash

    Bosses are often heard to ask: "What's the bank balance today?" Frightening, but true.

    The message is simple: don't do it.
  7. Forecast your cash balance

    Here is another often-heard comment: "Our business does not run that way; it is impossible to forecast cash requirements." The business that says that is about to hit the iceberg.

    If you have an annual budget projecting sales, costs of sales, gross profit, overheads and bank and interest charges on a monthly basis, then you can project your opening and closing cash positions.
  8. If you see a cash flow problem on the horizon, deal with it

    Most businesses – even major multinationals – face a cash flow challenge from time to time. So, if you are a small business you are not alone! But don't just say, as some do: "Oh, I think we can weather the storm – we don't want to start borrowing from the bank."

    There is nothing wrong in having a borrowing facility with the bank. It is far better to have that than go under. It is the underlying cash controls that will prevent the short-term borrowing from becoming a long-term situation. Too often, poor internal discipline and controls lead to bank borrowing being a substitute for poor cash and business management.
  9. Put cash management on your daily "to do" list

    If you are a leader in your business, then make sure your new-found enthusiasm for cash management is passed on to your colleagues. Make this as much an item for discussion in meetings and general discussions as "How are sales?" or "Have these parts arrived yet?"

    If you are seen to be giving cash management a priority, your colleagues will do the same.
  10. Strong cash management frees up time to run the business

    Cash management is one of the key ingredients of a successful business. Too often, serious management time is spent fire-fighting customers and suppliers because of cash problems caused by poor cash management.

    Once you know that effective cash controls are in place, you can concentrate on running and growing your business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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