Challenges

Cash gets blocked up in businesses in all sorts of places Debtors, Stock, bad processes, well meaning staff.  Identifying exactly where there cash blockages are takes a bit of practice, and some good systems and processes to prevent future blocks.  In this case:

• Debtors were averaging 90 days to pay, due to :
  • no clearly communicated payment terms including having no due date included on invoices
  • no debtor management being in place to follow up slow payers
  • no bad debt management to “hand-off” bad payers to the debt collector
• Stock was not being monitored – both raw materials and final product – and so often became out of date
• Bills were being paid as soon as they arrived rather than within the terms specified

Background

This family owned hospitality venue had built up a cult following by producing all its own food in-house and wholesaling some of its produce.  However, as its reputation and sales grew the family were no longer able to rely on “good relationships” to ensure they were paid in a timely fashion.  The business had also relied on one or two key people to mange the accounts and cashflow, but the growth meant these people had less time to spend “down in the accounting trenches” so cash-flow in particular had taken a hit.

Solution

Conducted a targeted investigation of the three key areas of cashflow blockages:

1. Current Cash Stores – Debtors, loans, turnover
2. Pending Cash Stores – Work in Progress and/or Stock
3. Future Cash Stores – Terms and Conditions, Sales Processes and Collections Processes

Recommending a cash-flow improvement regime including:

• Training the Sales staff to discuss terms as part of their sales pitch
• Setting up clear terms and conditions that new customers were required to sign and existing customers advised of
• Updating the Invoice Layout to include payment terms
• Implementing a debtors process where followup calls were made:
  • initially by an admin staff member
  • escalated to the owners where required
  • escalated to debt collectors where required
• Establishing a workflow system to better indicate what stock would be needed when, to reduce stock being held “just in case”
• Establishing a stock management system to ensure Oldest Out First to reduce spoilage and waste

Outcome

The hospitality business with pressing liquidity issues had 35% cash flow increase and also cost savings of over 9% in the first twelve months.

This is a true client case study and only the names and images have been changed for privacy reasons.