postheadericon Cash flow – the lifeblood of any business, large or small

Cash flow is the lifeblood of any business, large or small. Running out of cash = FAILURE! You don’t want to fail do you? So, read on……..

The fact that you are reading on means that you either understand or have at least a notion that cash flow is important to your business.

And “YES” you are right. So, so right.

Cash flow is a a term that is often used somewhat casually,without full understanding, - sounds like the right thing to say or I’ve heard others I know or admire say that - its importance should never be undervalued. The definition of cash flow is; the excess of cash revenues over cash outlays in a given period of time. What cash  you had last month Versus what cash you have now = CASHFLOW.

If you have sales that have not generated cash revenue – selling on credit for example -  your cash flow is constricted and you may lose the ability to pay your own business expenses. At least it will mean you will need more cash- you are “BURNING CASH” as you might say. Poor cash flow means you may miss out on opportunities to grow. Most business models consume cash on expansion through holding more inventories for example. A subject for another day……

In today’s difficult business climate – and it may get worse before it gets better -  cash flow can be the difference in building your business or having to close your company – “GONE BUST”. It has been reported in the Wall Street Journal in the US that banks now want collateral or positive cash flow in considering any business lending. This is also my experience here in the UK. Despite the banks bail out they remain reluctant to lend monies to business owners. So, good cash flow is emerging as an ever more critical factor in evaluating your business health.

I love the following: What is the definition of a bank? Answer: A business that will lend you an umbrella when the sun shines but wants it back when it rains! Sums it up I think! And you?? Your opinion on Banks right now? Let me know.

With no clear indication that business conditions will improve in the near future you must consider all that you can do to improve your cash flow. Naturally you must consider tightening costs. There are likely places that you can review to determine if belt tightening is feasible. However, you don’t want to restrict expenditures to adversely impact product or customer service quality. research suggests it costs 7 times LESS to retain rather than GAIN a customer – so look after those customers you have, they are your priority. Nor should you jeopardize employee morale when looking to cut costs.

Most businesses find that in order to maximize cash flow improvements they must focus their efforts on the input side – accounts receivable or debtors – people who owe you money. Start by being cautious about granting credit. Can you sell WITHOUT granting credit? Tough but check this out. Is that potential customer you have been working on to get from your competitor, now interested in your offerings because your new sales rep is so effective or could it be that they’re in trouble and can’t pay their bills? Of course you should be vigilant and take all the precautions necessary in granting credit including credit checks and credit agreements with real actionable teeth in them. Spell out your terms; include costs for collections and allowable interest. And have the credit agreement signed and witnessed to protect your business interest. In the UK you have the right to charge interest for late payment. In the USA I’m not sure? Let me know?

The next step is the collection of your receivables. Put into place a programmed effort at the soft collection of your receivables. On a timely basis your staff should be contacting your clients who have not paid their past due invoices. Offer incentives your staff to do this – YOU GET WHAT YOU MEASURE AND REWARD!

Some industries often have receivables that are longer than the traditional net 30 day credit period, however plan for this type of situation and never allow the debt to linger. We’ll look at cash flow planning some time soon. It is through the improvement of your debt collection that you’ll see the strongest increases in cash flow. Ensure part of your weekly routines is the review of outstanding receivables. Take early ACTION!

When you have reached the point where you are not making progress in collecting your debts, it is time to seek the help of a professional debt collection service or get your lawyer to write them “a “This is SERIOUS letter”.. A quality collection agency has the tools and techniques need to get the tough collections done. Moreover, they can guide the process through the legal system if needed. Remember, the older a debt is the more difficult it is to recover. Protect your valuable asset, your accounts receivables, by acting intentionally to recover your bad debts.

Managing receivables is part of Working Capital Management – WCM – I’ll return to this in future blogs.


Until later, this The Cash Flow Tiger, writing to you from Redlands, 92373, Southern California, USA.


Don’t give credit, hold no inventories and negotiate extensions in payment of your suppliers!


You do want to maximize your cash flow don’t you?


postheadericon Tigers – hunting for cash? How safe is your cash flow?

Wow! This is amazing! Just how much cash was the elephant carrying?

Do you persue cash in your business with the same intensity as a Tiger?

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