Managing working capital effectively—in particular cash—is key to surviving in difficult economic times.
Ineffective working capital management is a common failing for most small to medium sized companies that struggle in difficult economic times: much needed cash is tied up in excess stock levels; customers seek to extend their credit terms; supplier lists are extended in a bid to seek extra credit, or extraneous purchases are made in bulk to achieve relatively small discounts. Poor production planning and scheduling can also tie up working capital in work-in-progress or perishable stock levels.
- Are you financially secure to survive a recession?
- Are you managing your working capital effectively?
- Can you meet you financial obligations and do you have personal assets offered as security?
- Are other funding options available to you?
- Are your investments creating real value?
Being able to physically pay the month end debts and obligations—particularly to employees and HM Revenue & Customs—is a particularly stressful problem for leaders of small and medium sized customers. Having undertaken the hard work of finding customers and providing them with high quality goods and services, securing and banking cash—matched with payments to suppliers—can often be problematic.
Cash management techniques and cashflow management is integral to success and should therefore be a focus of target setting for employees involved in the finance and account management functions. Is much-needed cash tied up within the accounts receivable function; are customers extending their agreed credit limits; are there invoices with customers that are in dispute? Is it possible to renegotiate credit terms with key suppliers? Are supplier lists too broad in an attempt to spread purchasing credit, yet the opportunities to negotiate better quality, delivery terms, bulk discounts are lost? |
