Question

A manufacturer of aftermarket parts for pick-up trucks hires you as operations executive. The CEO tells you that (s)he is unhappy with cash flow and suspects that cash is unnecessarily tied up in operations. Your first assignment is to increase cash flow by optimizing your area of responsibility. How will you proceed?

Answer 1

Some of the steps that I would take to improve the cash flow are as follows:

1. Sales invoices are the life blood of any business organization. If you don't send the sales invoices you don't get paid. Get the invoices done quickly to the customers. The quicker the invoices goes out, the quicker the money comes in to the business.
2. Avoid getting delayed payments from the customers. Make the customers do their payments on time. You could provide some incentives to the customers who make their payments on time. Alternatively you could even charge a late payment for the delayed payments from the customers.
3. Another option that could be considered is invoice factoring. Invoice factoring is the process of selling your unpaid invoices to other company in exchange for immediate cash. The factoring company takes a small cut from the total invoice.
4. The next would be re-evaluating the operating expenses of the company. Reducing the unnecessary expenses in the company. Optimizing the processes in the operational activity. Having the machinery to run at their full efficiencies. This would drastically reduce the operational cost and increases cash flow.
5. The old inventories which are idle could be liquidated if not put to use. This would the cash flow.
6. Make payments to the vendors only when it is due. Avoid making advance payments.

Cash flow depends on not only bringing more cash into the system, it also depends on not allowing cash, going out of the system excessively.