How to Find Cash
and What To Do With It
By Tom Klausen
Like a mirage in the desert, outstanding accounts receivable
can lie just beyond the reach of you, the cash-strapped business
owner. Except this is not a mirage—it’s real money that belongs to
you, is earned by you, but very much out of reach until your
customer decides to pay you.
How can you release this trapped cash and put it to
good use where and when you need it for your business? The quickest
and most effective way is to factor or finance your accounts
receivable by selling them at a discount to a commercial finance
company. This will enable you to replace your accounts receivable
with cash in hand and could make a drastic difference to the way you
run your business.
However, once you release this money, there’s no point in
letting it sit idle in a bank account. This new cash is “working
capital” and it literally has to be put to work. Make sure you have
enough on hand at all times to cover immediate operating expenses.
But once you have built up excess cash then you can begin to spend
it. Following are some recommended uses for this extra cash, in
order of importance:
Pay past due taxes:
Negotiate a repayment plan on any past due taxes and always stay
current on every level of tax. Penalties, interest and the extra
scrutiny you will attract make this an extremely expensive and
dangerous source of working capital.
Pay past due
Supplier credit is your best source of working capital and you need
to treat it as such. Since there is no interest, no collateral and
no personal guarantees you simply cannot do better than that. Strive
to build strong relationships with your suppliers by paying on time,
but first remit all past due balances immediately. Then whenever
possible take advantage of early pay discounts. Not only do these
discounts go directly to the bottom line but, over time, you will
earn the title of “preferred customer” which is a very good position
to be in with many perks and benefits.
Perhaps you could use some extra cash to hire a well-trained
salesperson or two and increase sales quickly. Paying a good
commission faster than your competitors will help you to attract and
retain the best and most qualified salespeople. You might also
consider investing in better marketing materials that will help to
increase sales over time.
Build inventory –
It is important to deliver product in a timely manner, but inventory
is another common place that ties up valuable working capital. Stock
only what you deem necessary to have on hand and work toward a more
fluid inventory management system. If product is not moving, then
consider discounting it to get it off your shelves.
Streamlining operations to lower overhead is always a good use of
funds. Improving accounting and other reporting processes will give
management access to timely information and ultimately saving the
company money in a variety of different ways.
Equipment and technology upgrades that will lower costs and/or
improve the quality of your product or service can be a very smart
use of cash. Having cash on hand can help you when negotiating with
equipment vendors or lease companies. It may enable you to buy used
and/or enter into more favorable financing terms.
Purchase your own
This should be a
long-term goal for every company. Not only can you lower costs and
improve efficiencies, but companies that own their facilities and
have good credit ratings are far more likely to obtain and take
advantage of favorable bank financing.
Now and for the foreseeable future it will be difficult to
deal with bankers and venture capitalists. However, through
factoring and accounts receivable financing, you can free up the
hidden cash in your company and put it to productive use within your
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