CEO Hint #1: 5 Things to Conserve Your Cash Flow

Cash flow is one of the most important things to keep an eye on at any time, but especially in difficult economic times.    Think about suppliers to Nortel and the auto industry wanting to get paid earlier than usual and you understand how these suppliers are trying to stay on top of their cash flow.  Here are 5 things you can do to conserve your cash flow.   If you’re a small business or multi-national conglomerate the need to conserve cash is important in these times.  Equity funds and venture capitalists are hoarding cash waiting for the right opportunity to invest in those opportunities which fit their profiles at this time.

1. Prepare cash flow projections going out at least 2 years.

• It’s better to be proactive, to understand what happens if your cash flow drops a few per cent andbe able to take action early.

2. Review and tighten credit policies

• Review the payment histories of late paying customers and see if they’re stretching their receivables with you.
• Start flagging late paying customers and re-do credit checks on them.  Credit is a privilege, the restaurant industry is very quick to change their credit to C.O.D. if customers don’t pay on time, other industries could use the same policies.

3. Invoice for services provided or goods delivered when they’re complete, don’t wait, the extra few days or week adds up.  Start emailing and faxing invoices instead of snail mail.

• Follow up the next day after invoices to double check customers have received their invoices.  Waiting till the end of the month to check on invoices will delay payment.

4. See if you can extend suppliers’ terms to over 30 days.

5. Renegotiate contracts with banks, landlords, telcom carriers, etc. especially if the contracts are coming up for renewal within a few months.

In summary its easier to spend money than to collect so its even more important today to try to conserve cash and collecting accounts receivable is paramount today.  By tracking your cash flow it easier to make sure you don’t get unpleasant surprises.

Written by Richard Wong, CMA  rwong@firstchoicecapital.ca