Cash Will Always Be King

"We're really not all that concerned about our cash."

The CEO telling me this last year runs a $100 million manufacturing company and didn't see the need to get his customers to pay him on time. This public company had substantial cash equity infusions at the time and a large bank credit line available. Most likely, his thought was "What's the point in spending resources to maximize cash flow when you can easily raise whatever debt or equity you need?" If that CEO hasn't changed his tune by now, his lenders will most likely be forcing him to reconsider.

So what are companies to do? It's time for that CEO and everyone else to focus on maximizing cash flow from operations and creating efficiencies in their order-to-cash cycle--including turning those receivables to cash as quickly as possible.

Here are some quick strategies to implement now:

1) Most importantly, analyze the risk of default for EVERY SINGLE CREDIT CUSTOMER to price the risk appropriately and to set credit lines within your risk tolerance. With the ongoing deterioriation in receivables quality, you must constantly monitor the ever-changing credit quality of your customers so you can minimize bad debt losses on high-risk accounts.

2) Whenever practical, offer cash discounts for early payment to speed up cash flow.

3) Focus on the large, frequent slow-pay customers to firmly enforce your contract terms. Work with them to secure timely payments.

4) Automate the collection activity. No collection department should be working from paper agings or spreadsheets. Databases, including automated scheduling, will organize the work to maximize collection efforts to get you paid faster.

5) Challenge unauthorized short pays over your tolerance. Don't allow customers' payment shortages to just be written off to some type of "slush fund". Challenge customers with their deduction claims and aggressively collect back the deductions taken in error. You can prevent future short pays by swiftly dealing with these types of receivables balances.

This credit meltdown has knocked many companies off balance from their years of relying on the debt and equity markets to make up the difference in their poorly executed order-to-cash cycle. It's time for companies to take control of their own cash flow and focus on what's most important for them to survive the meltdown. Sales, assets, and profits mean very little without cash. Cash has been, and will always be, king.