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Cash is King, Long Live the King

With the ever moving horizon of Brexit looming over the country and the continuing feeling of doubt and indecision, many of us within the accountancy profession have noticed a strong focus from all businesses on cash management over the last 18 months.

Cash has always been important but never more so than when businesses are facing economic uncertainty.

While it might sound like a cliché, the old saying is particularly relevant - turnover is vanity, profit is sanity and cash is reality.

There are plenty of ways to improve cash flow and I am sure you will have all heard the majority of those tips and tricks over the years.  Simple methods do work – for example, sending the invoice immediately after delivery of service or goods and contacting the customer to make sure they are happy with the invoice and have no queries early in the payment process rather than when it is overdue. Many of the simple methods for ensuring cash is collected earlier in the payment cycle are more easily applied using cloud technology due to the software’s ability to email invoices instantaneously and send automated reminders to customers when payment is overdue.

Our OutsourcedFD service includes the option to assist in debt collection or simply help set up an automated debt collection and reminder system. However, what most clients need and want is to understand when a shortage may occur so they can take proactive steps to avoid any nasty phone calls from the bank manager.

Cashflow projection isn’t anything new and most would argue there are three types of cash flow. Short term (based on your current accounting data), medium term (taking your current accounting data and extending for, say, 12 months) and longer term (a forecast based upon a set of assumptions on growth and payment profiles over two years or more).

Short term cashflow projection is normally fairly straightforward as most business owners know which customers pay on time and which don’t, although there is a new raft of artificial intelligence backed software which can make more accurate predictions based on past payment history, making the process quicker and more useful.

Several of our OutsourcedFD clients already receive short term cashflow projections based upon this technology.

However, what can you do about medium and long term cashflow projections? 

Traditionally, this has been done using a spreadsheet populated with assumptions and calculations meaning that producing the cashflow model is a fairly complex and lengthy process.

Once again, using the latest technology, we are beginning to see improvements in the turnaround time for new cashflow models. The key benefit of new cashflow software is that it allows scenarios for different rates of growth, adding new staff or new product lines to be created quickly and easily by our specialists.

The new software enables graphical presentation of key indicators which is proving extremely popular, making it easy to interpret information even if you are not an accountant.

One example of this recent development involved a client who asked us to prepare a cash flow forecast to secure funding from the bank.  The bank manager told our client that it was the best presentation of cashflow forecasting he had seen in his entire career and the client was offered a facility within a few days.

In another example, we were able to help a client predict a cashflow shortage due to their PAYE tax payments coinciding with a VAT payment. They have been able to secure a short term loan to cover the period while making a push to collect cash due on outstanding debts to reduce the impact.

The use of these new technologies is enabling us to provide more timely information to assist you in making better business decisions. If you are interested in any area mentioned above, please do not hesitate to contact me.

Dan Cooper - Director, Ryecroft Glenton


T: 0191 239 0942