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Cash Is King

The importance of cash

It’s vitally important to understand the cash peaks and troughs in your business. It can mean the difference between success or becoming insolvent and business closure. Additionally careful injection of capital at the right time can take your business to the next level.

You cannot operate even if you are profitable without cash to buy your supplies or pay your staff and you cannot expand without an injection of cash. A SALE IS WORTHLESS UNTIL THE MONEY’S COMES IN!

There are many businesses that run on overdrafts and paying extra interest due to lack of billing promptly and poor collection processes and procedures. In many cases the extra interest payments far out way the cost of employing a credit controller to reduce debt collection periods. Are you doing credit checks on prospective customers, are they high risk?

Do you have a process in place once a debt goes 30 days overdue, 60 days overdue etc.  This is so important. There are many businesses that have old debtor balances that they do not recover.

Any business MUST have systems and processes in place to assess new credit customers, make sure you invoice promptly and that the debt is collected on a timely basis in accordance with your terms and conditions. For unpaid debts there needs to be an adequate process in place and it needs to be followed. You can always also use a debt collection agency and invoice factoring is also an option.

It is often wise to separate the sales function and the collection function so that the business relationship is not compromised, but it depends on your business and the relationships you have with your customers. FORECASTING & MONITORING becomes increasingly important the bigger you get. It gives you time to arrange funding when you need it and identifies surpluses which can be used to invest.

Your staff won’t be happy if at the end of the month you don’t have enough cash to pay them because you didn’t arrange funding and your cash profile means your customers only pay after month end. It is vitally important to prepare monthly (preferable weekly) and yearly cash forecasts and then monitor these against actual cash positions.

Of course you need something to base these forecasts on and these will be built up from your reporting system and from your budgets and profit forecasts. Come and talk to us. We can assess whether your current processes and procedures are robust enough and help you design proper sales and credit control procedures that will save you paying the bank your hard earned profits and make sure you are collecting all and help help you design a proper cash forecasting process for your business

Disclaimer: Paul Stankiewicz is the owner and principal at Paul Marks & Co Chartered Accountants which is the trading name of Paul Marks Ltd a Limited Company registered in England and Wales (registered number 4487645). This article is designed for the information of readers only and readers should not act on any of the information contained in this article without seeking professional advice. Nothing in this article constitutes advice, nor does the transmission, downloading or sending of any information or the Material create any contractual relationship. Links to third party websites are provided as a convenience to the reader, Paul Marks Ltd does not control and is not responsible for any of those websites or their content.Paul Stankiewicz and Paul Marks Ltd accepts no liability or responsibility whatsoever for any loss or damage suffered by any user of the information contained on or accessed through this article or the Material downloaded.