Tips to Improve Cash Flow from Daily Operations

In our recent blog post, we talked about the importance of cash flow to daily operations.  We touched on how vital it is to forecast cash flow.  Without a reasonable cash flow forecast, a company simply floats adrift, heading for the rocks.  No one likes a shipwreck. Profit conceptBut with an automated, reliable, and consistent system at the helm, you are sure to steer your ship right. We recommend software to help, not only because it simplifies the process, but it also lets you dig into the numbers and uncover trends.

We’ve covered the nuts and bolts of what automation begins to bring to cash flow management: tracking discounts to good payers, penalties to bad payers, deposits from troublesome customers, and the snapshot cash flow estimate.  Like learning to drive a car, you start to get better and relax. Then, you shift gears and start to look for additional ways to increase cash flow from other business processes. Here are some ways to find usable cash from daily operations in your business:

1) Sell excess inventory

Obsolete and otherwise unneeded inventory takes up space and ties up capital.  There are the costs associated with storage, maintenance requirements, and inventory tracking and reconciliation.  It is amazing how inventory can accumulate due to: over ordering, out of season, vendor shipped incorrect amounts or the wrong items, or customer-change request.  Cash is tied up in this nonproducing inventory and it is taking up space needed for higher margin inventory.  It is a best practice to maintain inventory turnover reports, plan to remove excess inventory from stock, and sell it for whatever price you can.

2) Sell obsolete machinery

Idle, obsolete, or non-operational machinery also takes up space and ties up additional capital.  The associated costs of obsolete machinery are similar to excess inventory with the added cost of specialty maintenance and safety.   Machinery has a useful life cycle so it is a best practice to plan the removal and sale of obsolete machinery.  Check with your accounting professional to see if there is a taxable gain on the sale of equipment.  Equipment that is owned for a long period of time may have a book value that is equal to or less than the salvage value.

3) Keep cash balances in interest bearing accounts

Keeping the cash balance in interest bearing account will generate some interest income on interest.  Some banks offer accounts that sweep the cash balance into an interest bearing account at night and return the cash to the checking accounting in the morning.  Of course, interest earned depends on prevailing interest rates.

4) Use credit card for purchases

Paying expenses and suppliers with credit cards allow for better expense tracking, adherence to purchasing policies by employees, and temporary cash outflow delays.  Credit card companies and banks have very sophisticated purchasing tools and payment options for business owners.  The high interest rate associated with credit cards encourages monthly balance pay off.  If working capital is needed, unsecured debt on credit cards is one of the most expensive funding options due to the high interest rates.  It is a best practice to use credit cards for planned expenses that will be paid in full by the due date.

Everyone has seen the applications their company uses to track inventory on the shelves back in the warehouse. They have seen the Vice President going over the numbers, manually trying to find excess inventory, obsolete machinery, and stuff that has come back from shipping.    What if a software application combined the ability to track the physical wares while counting the beans at the same time? What if that same software could point out, or suggest which inventory should be cleaned out to create cash flow? This is where the Trinity’s distribution solutions come into play.

With this newly generated cash flow, an accounts receivable and credit collections management system can further help free up cash by collection invoices due sooner.

Once you set up daily processes for maximum cash flow, you can sit back and start to look for trends and areas to improve further.  Maybe, if you are feeling confident and comfortable, you can even flip on the cruise control and automate processes to capture productivity gains.  But that is another blog post.

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