Cash Flow Challenge

                                      CASH FLOW SHORTAGE

In difficult times, keeping on top of your cash flow can make the difference between survival and bankruptcy.

A recent security client was concerned that he would need more cash as a cushion against the uncertain days ahead. An initial analysis of his operations showed that he even though his sales were in the $70M range he had A/R outstanding equal to 65days. The company’s payment terms were 45 days. Additionally, the company had to borrow money to fund operations while awaiting customer payments. All of their customers were corporate clients and had to be invoiced. The large banking clients, not surprisingly, often took their time paying their invoices.

The most obvious solution to this cash flow problem was to make more frequent calls when the payments were late or to change the company’s credit policy. However, in this environment may have done more harm than good. The client was very apprehensive on taking either of these actions as it might result in a loss of market share.

Our operational review revealed that his cash problem was not all the customers fault. We determined that we could help him by increasing the productivity of his internal processes. We focused on his billing processes. It was taking an average of 12 days to get an invoice mailed. Additionally, we discovered that over 30% of the time the documents were mishandled. Necessary documentation was missing and customer change orders weren’t approved. Other inefficiencies in the system included that the documents had to go through three different departments to get processed.

We designed a checklist for use by the installers that listed every document and signature needed to send out the invoice. Now, everyone in the company uses the same control sheet to insure consistency and reduce unnecessary billing delays. We also instituted procedures to insure that invoices were prepared as received and not batched.

As a result, we were able to cut invoice processing time in half and free up over $1M in cash.