Modernising cash flow management to address current operational challenges

For many companies, the disruptive environment that they have been experiencing over the past few years has exposed significant shortcomings in their cash flow and their approach to cash management.

It’s not that their cash flow management and cash management systems were wrong; they became outdated and are inappropriate for the business operating environment created over the past three years.

Think of it this way; Bjorn Borg and John McEnroe were world-class athletes and their generation’s elite tennis players. However, if they were to compete against the likes of Rafael Nadal and Roger Federer using the equipment that they had (vs modern equipment), they may not be as great as they were back in their day.

So how do companies and businesses modernise their cash flow and cash management systems? I recently read an article by Forbes which discusses this in greater detail.

Decrease liabilities and improve assets

To improve cash flow, decrease your liabilities and improve your assets. Reducing the costs and expenses is a target even when your business is doing well.

The key is to improve your cash flows. Check your liabilities and turn them into assets that generate cash flows. You can sell your unused lands or vehicles to generate short-term cash flows.

Meanwhile, make promotions on sales to add new short-term clients. – Burak Arkun, Tailwind Airlines

Conduct a bottoms-up budget review

I find that if you do a bottoms-up budget process with monthly forecast reviews, you can find out what expenses are not needed that can be immediately reduced by terminating vendor contracts that are no longer required.

Also, these monthly meetings help determine which lower-priority projects can be delayed, leading to a slower ramp-up of vendor payments, and generating in-year expense savings. – Nick McGuire, DataLink Software

Open more payment channels

Opening more payment channels and honouring buyer payment preferences is always a smart strategy to increase cash flow.

For example, suppliers with an automated credit card acceptance strategy receive guaranteed funds while offering their buyers rebates and float. Overall, automated AR processes offer customers the preferred digital payment channels, speeding cash flow and reducing payments lag. – Justin Main, Billtrust

Automate payments and invoicing systems

When a supplier isn’t paid on time, B2B companies shouldn’t assume there is an issue with the payment but rather look earlier in the order-to-cash process.

This helps uncover issues stemming from when the interaction with the buyer began and an invoice was created, such as inputting the wrong price. Automated payments and invoicing systems can remove complexity and improve cash flow. – Brandon Spear, TreviPay

Leverage refinancing assets

Business leaders can increase their revenue while minimizing associated costs, maintaining comprehensive cash flow reports and adopting financial models and forecasting tools to predict future cash flows.

I personally leverage refinancing assets to generate working capital for our business. A clear example will be selling a used company car to staff. It is simply a win-win for all parties involved. – Tosin Osunkoya, Comercio Partners Limited

Use strategic forecasting

Leaders can optimize cash flow and working capital management through strategic forecasting, efficient receivables and payables management, cost control and leveraging technology.

By prioritizing these practices, they pave the path to financial stability and growth. – Michael Foguth, Foguth Financial Group

Streamline inventory management

Monitoring cash flow and working capital is critical to ensure optimal financial operations for an organization.

There are myriad factors, but focusing on streamlining inventory management, optimizing capital expenditures and conducting regular financial analysis, including better vendor management, will be key. Leaders would need to tailor strategies as per the growth vision for the organization. – Parijat Banerjee, LatentView Analytics

Maintain an updated cash flow plan

I recommend business owners maintain an updated cash flow management plan. Scenario planning will help determine what is needed to move forward today and earmark where funds may be needed down the road.

A clear financial forecast, combined with a trusted relationship with a business banker or financial advisor, will help owners make the right decision for their business. – Jenn Flynn, Small Business Bank at Capital One

Negotiate payment terms with vendors

Developing projections for future cash flows and making informed decisions about investments and expenses based on this information is the most impactful cash flow management skill to develop. As a company, we emphasize negotiating payment terms with vendors to optimize cash flow.

By carefully managing payment terms, we avoid cash shortages and take advantage of discounts for early payment. – Elie Nour, Nour Private Wealth

Taming the cash flow beast

This modernised approach to cash flow management does come with a caveat. It needs to be carried out off the back of an extensive risk management process.

Implementing significant change is necessary. However, if not done properly, factoring in how the change will impact the company, financial distress will be close. And that is a significantly more aggressive beast to tame than improving your cash flow management.

The Mystery Practitioner is an industry commentator that focuses on the shifting dynamics and innovative thinking that BRPs and turnaround professionals will need to embrace in order to achieve success in their businesses.