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7 warning signs about your cash ma

The treasury is the heart of the company. Regardless of the cause of death, a human being dies when his heart stops beating. A company dies when it has no cash flow. A human being can die from an accident or illness, but dies when his or her heart stops beating; a company can die from poorly controlled growth, insufficient margins or an unbalanced financial structure, but dies when it runs out of cash. Would you recognise the signs that should alert you?

You need to work on your cash management if :

1. Your relationship with your banker is difficult...

You find it difficult to make yourself heard when you have occasional cash flow needs. You meet once a year, you feel that the meeting goes well but you are slow to get answers, or the answers are not up to your demands. As a result, you find it difficult to finance your investments.

Possible causes

You warn him at the last moment that your company is going to have difficulties with its next deadline. Or worse: you have already presented him with a fait accompli.

Your annual results are weak or negative, yet your turnover is growing.

The financial structure of your balance sheet is unbalanced: it does not allow you to finance your operations.

2. You don't know where you stand

You warn your banker at the last moment because you yourself are warned at the last moment that you will have a temporary cash flow problem.

Possible causes

You have no cash flow monitoring or dashboards that would allow you to anticipate your difficulties:

  • Inventory statement

  • Statement of accounts receivable

  • Supplier schedule

  • Cash flow forecasts

3. Your customers often pay you late

While your suppliers are demanding in terms of payment deadlines, your customers systematically pay 15 or 30 days late. And this despite your customer reminder procedure: first reminder letter, second reminder letter and formal notice.

In addition, your customers use all possible methods to postpone payment. Your sales representatives explain that the customer will pay and your accounts receivable department asks certain customers to stop deliveries.

Possible causes

There are shortcomings in the sales order - payment process:

Documents or information are missing: payment deadline, billing address, etc.

  • The customer file is not updated when prices or payment terms change.

  • There are no preventive reminders.

  • There is no dispute management process.

4. Relations with your suppliers are difficult

Your suppliers often follow up on you, by telephone or by post. They send you invoices with penalties or interest for late payment and you spend too much time asking for a commercial gesture that cancels them out. Sometimes they even block your orders. And solving the problem takes you an infinite amount of time, not to mention the disruption to production.

Possible causes

Obviously, if you have cash flow problems, your relationship with suppliers is bad. But there may be other reasons:

  • The order-to-supplier process is flawed.

  • Supplier invoices take too long to process.

  • The supplier file is not updated when there are changes in price or payment terms.

5. Negotiations are tense

You meet with your suppliers, your customers and your banker at least once a year.

Your suppliers systematically start complaining about your payment delays at the beginning of each negotiation. It is then difficult to negotiate lower prices.

Your customers complain about the poor quality of your services even though your products are of good quality. They are tired of billing errors and endless disputes. As a result, your sales people find it difficult to negotiate.

Your banker is interested in all the information you give him/her, but you feel that you are wasting your time every time you meet with him/her because he/she rarely complies with your requests.

Possible causes

Your suppliers, your customers or your banker have specific expectations that you do not meet. Your salespeople have only one thing on their minds: selling. And they neglect to collect information that would make it easier to manage the order. Your accountants focus on their administrative tasks, and in the end no one really cares about the customer.

6. Your financial costs are too high

Your accountant has told you over and over again: your financial charges are too high, which is putting a strain on your profit and loss accounts, and consequently on your margins and your ability to invest.

Possible causes

  • Your loans are too high.

  • Your interest rate is too high.

  • You often use overdraft or cash facilities.

  • You have too many payment incidents.

7. You do not invest as much as you would like

You could invest more but are struggling to find finance, which limits the growth of your business.

Possible causes

All of the above, and also :

  • Your margins are insufficient.

How to improve your cash flow management

Increase your margins

For ideas, download our white paper: 10 good practices to improve margins.

Review the financial structure of your balance sheet

Ask your accountant to calculate :

  • Your company's working capital ;

  • Your company's working capital requirement.

If your working capital is negative, your company has structural cash flow problems.

If your working capital requirement is less than your working capital, you may have structural cash flow problems but your working capital requirement (inventory, customers, suppliers) may be poorly managed.

Work on your order-settlement processes and your stock

Ask your accountant to give you the following information:

  • The number of days of turnover that your stock represents over the last 3 years;

  • The average payment time of your suppliers;

  • The average payment time of your customers.

If the number of days of turnover represented by your stock has increased significantly over the last few years or if you pay your suppliers much faster than your customers do, you need to work on managing your stocks, your customers and your suppliers.

Implement cash management

Cash management starts with cash flow forecasting at budget time. This is when you need to ensure that all the company's financial needs are covered.

Then you need to set up a rolling one-month cash flow forecast. To do this, you need to :

  • Identify all cash receipts and disbursements;

  • Distinguish between certain and uncertain flows (you know exactly when you have to pay your suppliers and employees but it is more difficult to estimate the date of receipt of a customer cheque);

  • Use statistics for uncertain flows.

To go further

Comitatus can help you to :

  • Set up management and steering tools

  • Finance your business

  • Manage your stock, suppliers and customers

  • Finance innovation and research

  • Financing your equity (investments)

  • Train your employees


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