Accelerating Cash Inflows

Cash management involves forecasting, monitoring, analyzing, and adjusting cash inflows and outflows to ensure that there is sufficient cash on hand when a company needs that cash. The sale of goods and services results in cash coming in to a company.  Paying creditors, paying employees, paying taxes and dividends, along with repayment of loans granted to the company result in cash outflows. The credit department's role is vital because it involves collecting outstanding invoices promptly in order to maintain a steady inflow of cash. Here are a number of creative ideas for accelerating cash inflows:

• Use a lockbox,
• If you already have a lockbox, consider using more than one lockbox located appropriately based on a bank lockbox study in order to reduce mail float,
• If you have one or more lockboxes, make certain that all of your customers are using them - otherwise your customers are taking advantage of mail float by mailing payments to your office rather than to the appropriate lockbox,
• Offer a cash discount,
• Offer a larger cash discount,
• Encourage all customers to take advantage of your cash discount by reminding the buyer’s controller or the CFO that are not taking the discount about the discount for early payment,
• Shorten grace periods before charging back unearned cash discounts,
• Eliminate grace periods before charging back unearned cash discounts as a way to encourage faster payment,
• Discourage customers from paying late by adding late payment penalties,
• Use credit holds as a way to encourage customers to pay delinquent balances sooner rather than later,
• If you already use credit holds, use them more frequently.

Copyright 2010 by Michael C. Dennis.  All Rights Reserved.