Cash Flow Management

The ‘cheapest’ means of obtaining additional funding is extracting cash from the existing assets and operations of a business.

There are also significant advantages from good cash flow management:

  • Visibility on funding requirements.
  • Reduces debt and interest costs as free cash flow can be directly applied to funding.
  • Productivity and efficiency as less time and resources are spent on functions such as accounts receivable collection and warehouse costs for inventory.

The common ways to extract cash from a business are to:

  • Decrease working capital ie debtors and stock.
  • Realise surplus, underutilised or underperforming assets. This could include for example:
    • – Excess real property.
      – Corporate subsidiaries which are not part of the core operation of the business.
      – Operations within a corporation which do not provide sufficient return to justify the capital employed.

Working capital management is a complex issue and there are an extensive number of levers which effect stock and debtor balances. For instance:

  • Debtors drivers include sales, account terms, customer dispute management, seasonality, IT systems, integration of company sales and client ordering systems, documentation retention and management, product quality, accounts receivable management.
  • Stock drivers include supply chain management. stock mix, delivery lead times for inventory, obsolescence management, matching stock mix to sales requirements, integration of client ordering and stock delivery systems, stock organization methods such as “just in time” issues.

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