Cash Management

With banks reluctant to lend and liquidity in the economy tight, good cash management is of paramount importance to businesses. Good franchisors will be making this point to their networks and assisting in a number of areas.

The main areas where controls and processes can be put in place cover, credit control, buying, cost control, reporting and bank products.

Lets start with the basics. You need a credit control policy, setting out terms of trade, credit checks on new customers, credit limits, proof of delivery (if you deliver something!!), collection terms and a process to follow up slower payers. There is no point in setting a limit of £1,000 with payment due after 30 days if you then allow a customer to run up £10,000 of debt over 6 months, it is a bad debt waiting to happen!! Collecting debts once billed is also important, always agree an invoice in advance (no one likes surprises) and then push for payment when due, its not personal its business common sense. If the product/service has been delivered as agreed it is due for payment.

Clearly supply chain management is also an art but the basics of good buying need to be put in place. Agree terms in writing, use early settlement discounts, check invoices to see if billed as expected, beware of contract terms and penalties. In addition push for volume retro deals and consider the impact of over reliance on a key supplier and how non performance might affect you.

Reporting procedures are also key; if you are not capturing the right information to start with you cannot do comparison to budgets and expectations. Budgets and cash flow forecasts are not just for a bank manager to file in a drawer, they enable the business owner to control cash and determine where there is, or there is not “headroom” and cash gets tight. If you know when the pinch points are you can hopefully manage them rather than just ringing your bank on a Friday saying “we have just gone over our limit”!

There are specialist consultants looking at cost control and a number of overheads such as telecoms, stationary, motor, utilities etc., lend themselves to a review to secure better pricing (whilst not sacrificing quality!! No point in driving down insurance cost if you find you no longer have effective cover for that unforeseen event!!

Consider also the range of products available from banks. As well as loans and overdrafts there is asset finance, confidential invoice discounting, hedging products, currency exposure products, debt insurance and a good many others. Ask your manager to fully explain the range and how they might reduce risk, improve cash flow and enhance returns.

Finally consider a few other areas such as mitigation of tax liabilities (corporation tax, VAT, PAYE). Good planning at the outset can reduce or change the timing of liabilities to aid overall cash flow. Do not overlook areas like grants, apprenticeship schemes, and incentives generally which may also benefit you and put those policies in place now.

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Jan 31-Feb 1, 2019 London, UK
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