Cash flow is an important part of any company’s operations. Insufficient funds can lead to a bad credit rating, penalty and interest expenses, vendors placing our orders on hold etc. It can even lead to the downfall of the company.  

Not only is not being able to pay bills; embarrassing; but as I said before it could also cripple the company if serious enough. Suppliers, contractors etc. refusing to provide any more goods or services would impact on our delivering good / services further eroding cash flow by not creating much needed reserves that eventually are converted to cash flows. Further problems would include not being able to pay payroll (staff could refuse to work), taxes (which the principle(s) would be responsible for). Eventually the Bank could call in its line of credit. Note: Creditor’s could put it into receivership and the company could be closed.

What to do?

Make sure your vendors are paid in an acceptable time frame. Acceptable means stretch as far as you can to suit your needs; without the suppliers putting your goods / services on hold. If you have multiple suppliers pay the ones that are most urgent to your company now, and communicate to others when a payment will be made. Suppliers, creditors are more forgiving when they know that a payment is coming; even though it will be late.

Another method that I use to stay on top of Accounts Receivable is by meeting the Accounts Receivable person / department on a monthly basis (more often if there are current cash flow challenges), reviewing the aged report together and looking at strategies on bringing in everything over 120 days or as a minimum to find out why the payments are still outstanding. I then go through the process for anything over 90 days. At meetings; action items are delineated and should be the first thing addressed at the upcoming meetings.

Note also: Speaking about meetings; I always review my action items before any meeting and make sure mine are done, and then make sure action items designated to others are completed once we meet.

If there are still cash flow difficulties, then that is a topic for another day.

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