The growth of business absorbs money – many take it as an axiom, an uncontested law of entrepreneurship. In this article, I have collected for you 10 ways to reduce the cash cycle. Among them, you will most likely find a heap of those that you can apply in your company in the coming year – and support growth without consuming cache stocks.
- First, stop saying: “It happened in our industry”.
- Adjust the daily cache reporting with a short explanation of why it has changed in the last 24 hours – and compare it with payables and receivables once a week. You will learn more about your business when you see how the cash flow changes from day to day.
- If you want to be paid faster, ask for it. Small firms find that large companies (and even state organizations) will pay much faster and sometimes even in advance, if they simply ask, ask again and ask again.
- Offer bonuses to customers who pay in advance or on time (see Wild Birds Unlimited example below).
- Set up bills faster – hire another person in the accounting department, which will only deal with the timely issue and tracking of accounts.
- Understand why customers pay later – it often turns out that there are recurring errors in the accounts or accounts are structured so that it is not easy for customers to pay them.
- Find out how the cycles of paying bills for your customers are organized, and bills at such a time that they are paid more quickly.
- Reduce the supply of products and services. Everyone has something that hangs “in the process of work.” The sooner you finish the projects, the faster you will be paid.
- Increase the value of products or services – when customers really appreciate you, it makes them pay bills faster.
- Naturally increasing margins and profits allows you to have more cache.
An example of the company Wild Birds Unlimited shows how you can create an advantage for consumers, so they pay in advance. Stably recognized as one of the best franchises in the US, WBU sells bird food, feeders and other products to those who are interested in birds. Jim Carpenter, the founder of the company, realized that his customers would like to buy food wholesale lots, but they are inconvenient to transport such a lot and store it. Twice a year he offers his customers the opportunity to buy an annual supply of feed at a significant discount, but agrees to keep it in the company’s warehouses as part of the “Free Food Storage Program.” After this, once or twice a month, customers can come and take the food they need. This not only generates a large amount of cash at once, but also does so at the expense of the number of visitors in stores – everyone wins.
PPR Travel, a successful company in the healthcare market, hired an additional person whose task was to bills without bills, call hospitals and clarify whether they want the account to be structured in a certain way, As the bill have exhibited. In addition, they invented to change the color of their accounts – the standard in their industry is white, they also made the accounts blue, so that they stand out in a stack on the desk of an accountant paying them. Dwight Cooper, CEO of the company, received much feedback from counterparties: “Since we know that your account is correct and easy to pay, and we know that it is on blue paper, we pull it out of the middle of the stack and process it first.”
I have not yet met a company that could not improve the situation with the cache. In addition, what is required to reduce the cycle of cash turnover usually leads to improved operational processes and customer service. You do not need to deceive customers and suppliers to improve cash flow. Moreover, having more cash, you will be stronger at night!