CUSTOMatrix™ Insights Newsletter

 

Got Cash?

Need Cash For Working Capital?...Look No Further Than Your Own Balance Sheet!!

 

By Thomas J. Gillcrist , MBA, Principal, Strategic Services, CUSTOMatrix, Inc.

We have all heard the marketing jingle “Got Milk?” right?  Well, I have been working in the turnaround arena for the past 20+ years and a troubled company’s jingle is “Got Cash?”  At almost every turnaround I have been involved in, management states that their main problem is that they have no cash.  Guess what?  That is a symptom, not a problem.  When you really start analyzing why a company is failing, there are usually many contributing factors.  However, one of the very common problems is that most companies have a large amount of cash tied up on their own balance sheet and they are doing nothing about it.

What do I mean by that?  I mean you as business managers have 1) accounts receivable that are not being collected on time; 2) raw material, consumables and/or finished goods inventory that are not turning quickly enough, obsolete or are not controlled from a distribution standpoint; 3)  Work-in-process inventory that is stalled due to due to delays from the customer and/or specification/inspection issues; 4) fixed assets that are either underutilized  and/or obsolete and 5)  legal actions that shouldn’t be in court and/or other business disputes that should.

Whether you are a troubled company, a company in a stable mode or a company in a high growth mode, all businesses need cash.  LOOK TO YOUR BALANCE SHEET!!!!!!  I’m not talking about cash management in the classical sense of lock boxes and zero balance accounts.  My definition of cash management is to have managers become cash collection maniacs.  You as managers need to lead the charge.  Develop a daily cash position and a weekly/monthly cash forecast.  Be relentless about managing YOUR CASH!  Hold your people accountable for collecting cash.  Be sure to tie your managers’ performance reviews, raises and bonuses to cash management metrics. 

Today we only have time to speak about one of the above areas.  All of the above working capital problems have a distinct set of processes that should be followed to drive improvement.  Here are some basic things you need to do to start wringing the cash out of your business on the account receivable side:

 

Accounts Receivable Collection:  

  • Review accounts receivable on a weekly basis with unit managers.
  • Apply project management skills to accounts receivable collection efforts. 
  • Talk to the customers early and find out why they are not paying their bills.
  • Determine what the problem is and then use all of the resources of your company to solve it.
  • Create a paper trail with your customer concerning their delinquent payment. 
  • Remove all obstacles to payment.  If you company is at fault, take the hit, get clean and then escalate the issue to your customer’s management.  If the problems are shared, make sure you deal with a decision maker at the customer and quickly negotiate a settlement.
  • Perform a perato analysis as to what problems were causing the collection delays.  Analyze the causes and address any internal issues causing collection issues.  Stop repeating the collection delay madness.

 

Remember, accounts receivable problems don’t get better with time, they get worse.  Use you accounts receivable aging data as your metric.  Also, don’t wait for 90 days to start working an issue.  Get your people communicating with customers before an invoice even ages 30 days.  Set an expectation with your customers and your employees that you want to pick up the check on the invoice due date.  Boy, getting paid on time is a novel concept!  Its your money, you earned it, so go get it.  Remember which customers have caused you collection problems in the past and consider managing your credit limit to those customers differently in the future.

In subsequent newsletters, we will be talking about how to improve inefficiencies in your other working capital accounts.  Simply put, your cash is your license to do business.  Got Cash?  

 

Written by Thomas J. Gillcrist, MBA, Principal, CUSTOMatrix, Inc.’s Strategic Services practice.  Tom is an aggressive turnaround leader, with a history of successfully building and/or restructuring businesses through the implementation of Lean Enterprise principles. 

 

Should your organization be struggling with breaking through to the next level of profitability, CUSTOMatrix Consultants can assist you in assessing your situation and recommending a course of action.

 

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