Getting the full picture on Cash Flow
Some young friends of ours recently moved to London, and have officially become part of “Generation Rent”. After spending some time viewing a number of (in Estate Agent speak), “well-appointed, charming residence” a.k.a rabbit hutches, they have settled on a room within an apartment in South London.
Wanting to stay in their new abode on a long-term basis and like most, wanting to make it feel more like a home and give it a personal touch they needed to buy some furniture. That led them to a large and well known DIY chain, who are providing a ‘Buy Now Pay Later’ option for customers. It had their full attention, as having paid the extortionate rent and deposit, They didn’t have enough left over to decorate their new ‘humble abode’, cash flow would just not allow the large off purchase. What was interesting about this, was that it offered up to 6 months to pay everything off. They jumped on this straight away.
Hearing of this situation, it set me to wonder how companies like these manage to afford giving their customers products for free – well at first – and then wait 6 months down the road for their payment. It must play havoc with the cash flow predictions. More to the point, how do they manage this process, and make sure the customer pays within 54 days, 6 months or whatever it may be? I always wondered what happens behind the scenes at month end. How do they track payments; how much has been paid and if paid on time? Debtor management solutions must be a key part of the their process even as a store based retailer.
All businesses actually operate in a similar fashion, if you think about it. You provide a product or service to a customer and bill them for it and then wait to be paid. And wait. And wait. So in effect, you are offering something free for a period of time in the hope and anticipation of getting paid in the end. This could be a 30 day payment term or a 6 month loan. How do you manage this?
Without a credit management system, this would be a simple spreadsheet of payments and checking the bank statement, it is hard for businesses to manage their debtors and cash flow. Without effectively getting money into your organisation, how can you manage cash flow, strategic planning, payroll, expansion plans, investments and so on? I think the answer has to be close management of your debtors and controlled and accurate allocation of payments in the finance system.
When you think about it , virtually all companies have a need for better and automated cash management processes, be this for debtors, account reconciliations or bank reconciliations.
Cash is king in more ways than one. Be it your personal cash flow and how you can afford to decorate your apartment, or your business cash flow and haw you can afford to sell the furniture for that apartment. Cash makes the world go round and systems to manage this are essential.