In today’s uncertain credit environment, businesses can often find a competitive edge by adopting an effective cash management strategy. The aim is to maximise the advantages offered by the cheapest source of working capital in the market, which is cash on the balance sheet.
Most cash management strategies will encompass three key areas: cash in, cash out and inventory. By accelerating performance in the first, negotiating improved terms in the second and reducing outlays in the third, we work with businesses to manage their cash flows, build operational stability, and increase profit.
Integrated cash flow forecasting is essential. We set up a 13-week rolling cash flow forecast, which should integrate with budgets, and if there are anomalies they will be highlighted. We can then deal with related points – customer terms and expected receipts, what can we do to accelerate cash inflows, whether discounting may offer advantages, the possibility of working with invoice funders to manage drawdowns, and how to address shortfalls.
On the supply side it may be possible to look to renegotiate or stretch terms with key suppliers, as well as examining alternative supply options to mitigate concentration risk. Early payment and retroactive discounts may be obtainable, and a thorough analysis of recurring payments of all kinds may identify other immediate cash savings. Restructuring term debt may also be beneficial.
Different approaches to cash management come with different trade-offs, but the key is to understand their consequences, select the best ones in context, and manage them effectively. We compare actuals to forecasts on a daily or weekly basis; then where shortfalls exist we work with the senior team to allow them to make informed choices about critical payments and other cash-related questions. Ultimately, the final decision is always with management – but we’re there to provide support and expertise at every stage.