Improving cashflow

16th May 2012

Businesses of all shapes and sizes are taking steps to improve their cashflow management, using a range of manual and automated processes, and the support of new and improved software, systems and services. FSN writer Lesley Meall reports.

Talk may be cheap but money isn’t. The days when banks and investors seemed desperate to lend it are a distant memory, and austerity has become almost fashionable. As individuals, businesses, not-for-profit entities, public sector bodies, and entire countries try to do more with less, and better manage their money, cashflow planning has risen up their agendas. ‘The management of cashflow is a critical issue for business survival,’ says Daniel Plant. As an insolvency practitioner at SFP he sees plenty of companies that do not appreciate this, but Philip King, chief executive of the Institute of Credit Management (ICM) reports that businesses are increasingly aware of the risks. ‘The economy remains a volatile environment for businesses of all sizes,’ says King, ‘and more and more enterprises are actively seeking out expert advice and resources that can better equip them to improve their cashflow’ - and their prospects. 

Doing this takes many forms (and FSN has previously considered analyst guidance on cash management best practice here). These range from the automation of purchase to pay and order to cash processes, through initiatives such as commitment accounting, centralised budgeting and enterprise-wide cash management, to improving credit management processes. ‘There is widespread interest in acquiring greater awareness and understanding of payment terms and their implications,’ reports King. In the UK this has brought ICM and the Department for Business Innovation and Skills (BIS) together to offer monthly tips, such as: ‘Check the exact name and legal status of businesses you supply. If it’s a sole trader or partnership, the proprietor or partners are personally liable, so make sure you have their full details. Businesses can disappear more quickly and easily than individuals.’ 

ICM and BIS have also created a Credit Management Matters portal with 13 free cashflow guides on: knowing your customer, payment terms, payment invoicing, credit insurance, managing cash when it’s time to invest, what to do when cash runs short, and more – already downloaded more than 300,000 times. For some enterprises, many of the suggested steps can be taken manually, introducing new and improved processes or streamlining existing processes; whilst other enterprises chose do this, or to automate their existing processes, with various types of software and systems or services. This can mean making better use of the systems you already have installed, it can mean adding functionality with new modules (such as credit control) or adding new software applications or bureau services, or even replacing some of the systems you have previously been using. 

For one automotive web design and development company it was the latter: Dijitul has improved its cashflow by replacing a traditional on-premise accounting system (from Sage) with a cloud-based system (from KashFlow). Dijitul director, Dave Hartshorne, struggled to get up-to-date P&Ls, cash flow forecasts (‘neither incomings nor outgoings were easily accessible’) and to manage credit control – which eventually made him copy everything into a spreadsheet. ‘Our previous software didn’t have really smart features such as the automated credit control email, which sends an alert to customers when payment is due,’ says Dijitul director Dave Hartshorne. With the new system, Dijitul configured this to send email alerts two days before invoices are due, and then three, five and seven days later; an approach that Hartshorne says improved his business cashflow by approximately 50 per cent. 

If you want to do more detailed cashflow planning than your accounting software can support there are various options. If you want to stick with spreadsheets, but you are looking for some guidance, you will find a range of Excel cashflow planning templates available here. If you want to add specific credit control functionality to your accounting software (and you can’t do this by adding functionality from your existing provider) there are a number of specialist products available. In the case of Sage-compatible products, for example, options include the Credit Control Module from Carlins (designed specifically for use with Sage products) and Credit Hound from Draycir (which can be used with Sage products, Microsoft Dynamics Nav and other systems). If you are taking a wider view, software tools that provide budgeting and planning features can be used to improve your cashflow planning – and more. 

That’s why the Davis Beverage Group, a regional soft drink distributor in the US, decided to replace its spreadsheet-based approach to budgeting and planning with Planning Maestro (from Centage). ‘Our spreadsheet was more than 160 pages,’ says Ken Davis, CFO, so auditing the budget and plan was a ‘huge challenge’ that took months, ‘and it was extremely difficult to manage cashflow’. The business wanted to track financials down to the account level and monitor debits, credits, expenses and revenues across numerous products, so as Davis adds: ‘Managing cashflow in spreadsheets simplified the process too much.’ Its separate companies, diverse employee base, and constantly changing external factors, called for more multi-faceted cashflow planning. ‘Now we can plan and budget much more quickly, to a higher level of precision and accuracy, and in half the amount of time.’ 

At the television network ITV, cash reporting has been improved with automation and end-to-end treasury processing. Managing bank accounts in ten currencies had created lots of manual processes, so ITV integrated and streamlined them with new systems for treasury management (City Financials), the reconciliation of balance sheets and bank statements (Trintech), and a bureau service to automate SWIFT connectivity (Bottomline). ‘The treasury project has enabled us to automate time consuming manual processes and free up our resources to focus on resolving exceptions’, says Karen Fagan, treasury back office manager at ITV. ‘We have a more complete view of cash balances across all bank accounts,’ she reports, and ITV is hoping to further improve its cashflow planning and treasury management by automating and integrating BACS, payroll, expenses and other and all sorts of other payments.