FREE online courses on How to Manage Cash Flow - Chapter 4 - Disbursement
Practices
How you manage various
disbursements and current assets can have a big impact on cash flows. There are
several problem areas to watch-out for, such as payroll, purchasing,
inventories, and insurance.
Payroll is a large cash
outflow and requires special attention. One obvious trend in payroll is to
implement a flexible workforce since the flow of work fluctuates. Outsourcing
and temporary workers are often part of a flexible workforce. Retain a full-time
workforce for core activities. You can also increase payroll float times by
simply distributing payroll checks after 2:00 p.m. Banks will not clear payroll checks until the
following week.
Flexible purchasing can
help cash flow. Consider renting certain items as opposed to purchasing. Ask
yourself do we really need this item and how often will we use it? If practical,
order items out-of-season when prices are low. Finally, consider using credit
cards to make purchases since this will give you more time for making payment.
Inventories have several
hidden costs that can drain cash flow. These costs include storage, insurance,
spoilage, handling, taxes, and financing. Get rid of inventory that is not
moving. Obsolete inventory should be removed immediately. Find new ways of
disposing of inventory. For example, it is better to sell inventory at costs
than not at all. Your overall objective is to maintain inventory levels at a
profitable level.
Make sure you do not
over insure your business. Purchase insurance in group packages to obtain the
lowest premiums. Start by covering your largest risks first. Structure as high a
deductible as you can afford. Avoid duplication and excessive insurance. Shift
certain costs, such as health insurance to the employee through higher payroll
deductions. Insurance should be used to cover risks that are material, but occur
infrequently.
