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Limited credit options-Cash Management might help

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The financial credit crisis has created a greater need for manufacturers to gain more visibility and control over cash and liquidity. The tight credit market places more need for Cash Management in order to find alternative ways to raise capital to keep business operations running and manage future growth opportunities.

Cash Management is the act of managing and forecasting the financial functions of payables, and receivables to positively impact your cash position. In other words, to: collect faster, pay faster, and forecast cash accurately.

  • Collect Faster: Bring cash in as quickly as possible to improve cash position
  • Pay Faster: To minimize late fees and leverage credit relations to improve discounts.
  • Forecast Accurately:* To ensure cash flow to cover short term debt and future operating expenses.

Helpful Financial Metrics:

  • Days Sales Outstanding (DSO)-measure of the receivables collections
  • Days Payables Outstanding (DPO)-measure of a companies average payable period.
  • Working Capital- Current Assets-Current Liabilities*

(*current assets=cash, accounts receivable, inventory, marketable securities, prepaid expenses. Current liabilities=accounts payable short term debt (bank loans and lines of credit), accrued liabilities and other debts due within a year.)

Forecasting is an important practice because you must be able to accurately assess your current cash position and make fairly reliable predictions about how much you’ll need to meet your future expenses. The projected cash flow report is a tool that should be in every ERP software package that can calculate and forecast working capital (monthly or weekly). Utilizing real time information (generated from ERP), you will have the ability to analyze and forecast your cash position to help make better financial decisions.