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Working together to improve cash culture

For any small business, improving cash flow means speeding up the processes involved in creating, sourcing, stocking and selling a product, as well as the collection of payment from debtors.

Because all of these elements have a part to play, cash flow isn’t just a concern for the finance department; it’s everyone’s responsibility within the business.

What is a cash culture? A business with a cash culture is one where the whole team understands the impact their actions have on cash flow, how to improve cash flow through their actions and are tasked to do so as part of their job.

Embedding a cash culture throughout a business will help you improve your cash position.

This section of the guide covers five key areas:

  1. Improving cash flow
  2. How cash-aware are your team?
  3. Cash management: everyone has a role to play
  4. Top tips for debtor management
  5. Sharing the cash flow burden
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We understand that you are worried about cash, about your people, and about your customers.

Emma Jones, Enterprise Nation

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1. Improving cash flow

Improving cash flow typically means negotiating credit from suppliers (to the maximum extent it is available without damaging relationships), and ensuring customers pay on time.

For many, it also means manufacturing stock as quickly and efficiently as possible to support sales, whilst also minimising write-offs or quality control issues.

The management team needs to take action to ensure that people throughout the organisation understand that cash is key and that they should look for areas of improvement. This will mean that people in different departments will need to take different actions.

2. How cash-aware are your team?

Just as staff can be incentivised to improve the operating performance of the business, they can also be incentivised to improve cash flow. If cash is the key obstacle or challenge for a business and there is budget for staff incentives, the incentives should prioritise improving cash flow for employees whose actions can influence it.

Top tip: It’s crucial that staff do not address cash to the detriment of other areas of the business, such as sales or the cost of materials, and therefore profitability.

3. Involving the wider team in cash management

Stock and inventory management: Any member of the team that’s involved in the controlling of manufacturing and stock should be in a position to look for improvements in cash tied up in inventory.

Managing creditors and debtors: Finance and credit control will be keen to improve the amount tied up in debtors. However, the sales team can also help. For example, prompt invoicing and spotting early warning signs of customer financial problems. The procurement team can also be incentivised to improve the terms that are agreed with suppliers, too.

Strategic decision-making: Higher-level decisions, such as the timing of key purchases (provided delay does not have a negative effect on performance, or jeopardise any key customers), directly impacts working capital. It’s vital that this is discussed at board level, particularly in challenging times.

Financing change: The other decision is around the use of facilities, such as asset-based lending (ABL), supply chain finance, overdrafts or drawing down on loans.

Read more about reviewing finance options for improving working capital.

Review incentives: If incentives have been created for staff to improve operating performance, you can put regular reviews in place to establish whether the incentives are having the desired effect. Is the focus on continuous improvement? Are cash flow performance targets set at an achievable and realistic level?

4. Top tips: debtor management and the impact on cash

Good customers make prompt payment. To speed up payment of accounts receivable certain actions can be taken:

  1. Issue invoices promptly, and follow up late payments immediately
  2. Identify slow-paying customers, and if necessary, introduce cash on-delivery rather than cancelling business with slow-payers
  3. Offer discounts to customers for prompt payment
  4. Request deposits when orders are taken
  5. Ensure credit checks are taken on all new credit customers
  6. Sell old, obsolete stock for the best price you can, as soon as you can

Top tip: Read our three steps to managing late payment

5. Sharing the cash flow burden: checklist for review

Sharing responsibility for cash will take pressure off the business – and support your accounts team. Use the checklist below, and consider who in the business can help most with each of the relevant opportunities to release much-needed cash:

Customers

  • Are major customers paying on time?
  • Is your product or service mission critical to your customers, so that payment of your invoices can be made a priority to them?
  • Are any customers having financial difficulties that might result in delays to payment?
  • Do you have good credit management practice? Has a procedure for contacting customers for payment been established – ahead of payment date for historically problematic customers, and immediately after a debt falls due for customers that usually pay to terms?

Stock / inventory

  • Are any stock levels of particular products rising because of slowing sales?
  • Do you have sufficient stock levels to meet customer demand? Or excessive stock levels?
  • Do you have too much working capital tied up in work-in-progress? Are products in manufacturing for orders received, or speculative sales?

Suppliers

  • Are you taking full payment terms with suppliers, but ensuring you pay on the due date?
  • Should you talk to specific suppliers about extending their credit terms?
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If a business is affected by external factors that it can’t control like COVID-19 for example, then it needs to talk to its customers and make sure they know that is has a problem. Make sure you’re talking to people.

Philip King, Small Business Commissioner

  1. Think through the impacts of major change in your particular market and your business as a result of COVID-19 - A contingency plan, where you’re going to be most effective or changes you can make in your business and what the consequences might be for your need for finance.

Stephen Pegge, Managing Director, Commercial Finance, UK Finance

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