top of page

Manage your Cash Flow before the Cash Crunch - Basics and Tips for Successful Liquidity, Part 1

Opere Suo Helpdesk

Updated: Jul 19, 2023

(For Companies selling products or services generating invoices)


Cash flow management concept is much more straight forward than most non-accountants believe. Strategically managing cash flow in advance of business cycle decline or market decline, or during accelerated growth will help you and your business to manage liquidity risks and stay afloat and also save on high interest expenses paid to short-term to medium-term business loans. (Also save few employees from layoffs!)


As some companies focus on creating more Revenue and growth, they can run into cash crunch during accelerated growth if not prompted with timely and sizable investor funding... with learning curve of employees to catch up with the speed, delay in technology advancements to support the growth timely, and dues to suppliers that grow faster than funding or receivables.




US Dollar
Benjamin Franklin



We wanted to share some tips on the Accounts Receivable side on this post. (We will cover Accounts Payable, Operating Cash Flow, Forecasting and Debt Utilization on follow-up posts.) These are not straight from text book, but something we learned and utilized during managing cash flows for clients and companies.


Accounts Receivable


  1. Managing Receivable Terms (Customer Payment Terms) - Most common terms used are listed below. Write down or export a consolidated report from your ERP system to find out the proportion (%) and cash value of your customer A/R on each of these categories (or categories you have) by time period or blocks of time into the future (such as weekly, bi-monthly, monthly). Tip: don't overcomplicate payment terms and create numerous customized terms unless you absolutely have to. The simpler, the better. We highly recommend not creating any complex terms that can not be processed by your ERP system as those will not show properly on automated reports and will be costly or at times impossible to implement.

    1. Prepay

    2. COD (Cash-on-Delivery)

    3. % Deposit + COD or Net xx

    4. Net 7 or Net 5

    5. Net 15

    6. Net 30

    7. Net 45

    8. Net 60

    9. Net 90

  2. Reviewing Average Days to Pay - This is a very important step but many organizations fail to do the exercise. Actual pay day can vary and be far from the actual due dates from payment term due date listed above (#1). Therefore, if your cash flow forecasts solely rely on A/R due dates, you will find yourself short of cash more often, struggle with clear idea of how much cash will be in company's bank account tomorrow (or next week), and end up borrowing more from lenders such as banks which comes at a cost and fumble through each morning spending more hours than needed to manage your daily cash. When reviewing Average Days to Pay, you will notice payment trends of customers -- some pay earlier and some pay late. And few... very late or never (bad debt reserve). Most have at least few days added due to their processing time. If your ERP system automatically calculates average days to pay for you, consolidate a report for at least 1-year period to see average days to pay history per customer account. Then see about how much (dollars and proportion) of your accounts receivable is paid in reality within 15 days, 30 days, 45 days, and 60 days+ and utilize this to make a more realistic forecast on the A/R receipts.

  3. Reviewing Future A/R (Cash Expectations on Receivables) - make a simple forecast of future A/R by reviewing Sales Orders. It does not have to be complicated. Pivot table on excel is very useful to do this (if you are new to business and want to know how, contact us.) Export sales orders from your ERP system by payment due date or delivery date and consolidate the amounts by date. If they are not in the system, ask your trusted sales person to give you a list of orders per customer. Then re-arrange those numbers by Average Days to Pay listed above, the realistic cash expectation date. If customer is new, use the due date from #1 payment terms. Tip: Sales Orders used for AR forecast should be confirmed sales orders, meaning orders that are in customer system and have generated confirmation as PO (Purchase Order) with PO number. General sales order figures in discussion without confirmation should be applied with caution and applied with calculated probability. We will cover this more in depth

  4. Accounts Receivable Forecast Summary - After running steps #1 - #3, you will have an idea of how much cash your company is expected to receive from customers on a daily, weekly, bi-weekly, and or monthly basis. If company is at a heavy risk management stage or borrowing base, daily cash forecast is necessary. Otherwise, most companies use weekly cash flow along with monthly cash flow forecast. With steps #1-3, Accounts Receivable Forecast Summary is created.

  5. Follow-up Steps - Using the information above, contact some of the customers who have good relationships with your business and pay right on time or few days early. If they are Net 60, ask them if they can be Net 45 or Net 30 and offer them some incentives for the change such as order discount or early payment discount. Amazon is one of the large companies utilizing early payment discount for their cash flow. For consistently late customers, if your business has market power and branding power to do so, start charging interest for late payments. When doing so, be sure to start by letting customers know in writing in advance when they will go into effect and give few months with just putting in clauses and not charging interest (forgive/waive late fee or interest payment for few pay periods) and let them know you will have to in the future to fund your bank loans. Be sure to communicate in a manner that is professional to not upset the customer and have your accounting staff handle the conversation. Writing a script in advance and reviewing would be recommended.


There are other ways to increase your Cash inflow through utilizing Accounts Receivable. We will share that with you through our next subscription post. If you'd like to receive an alert for more cash flow how-tos, please sign-up on https://www.operesuo.com/blog top right hand corner button Login/Sign-up.





Recent Posts

See All

Comments


CONTACT
LOCATION
MEETING HOURS

Email: ask@operesuo.com
Phone: +1 323-920-9251

Mail: P.O. Box 27716 

Los Angeles, CA 90027

Opere Suo Group
555 West Fifth Street, 35th Floor

Los Angeles, CA 90013

(Between S Grand Ave. & S Olive St.)

Mon - Fri: 8am - 8pm

​​Saturday: 8am - 1pm*

​Sunday: Closed

*Virtual or in-person by appointment only

© 2023 by Operesuo Group. All rights reserved. Privacy Policy.

bottom of page