Turn your assets, drive your Cash

turn your assets, drive your cash
turn your assets, drive your cash
Turn your assets, drive your cash

The latest figures from the Central Bank’s SME Market
Report for H2 (second half of) 2017 also reveals that the
SME lending market has become less concentrated in the
last six months, with fewer banks retaining their market
share. There are now alternatives to these pillar banks.

However, before considering these alternative finance
providers it’s prudent to take a cold, hard look at the way
you’re managing your working capital. It’s very likely that
you have a lot of capital tied up in debtors and stock that
you could turn into cash by challenging your working
capital practices and policies.
Here are five classic oversights made in working capital
management.

The latest figures from the Central Bank’s SME Market
Report for H2 (second half of) 2017 also reveals that the
SME lending market has become less concentrated in the
last six months, with fewer banks retaining their market
share. There are now alternatives to these pillar banks.
However, before considering these alternative finance
providers it’s prudent to take a cold, hard look at the way
you’re managing your working capital. It’s very likely that
you have a lot of capital tied up in debtors and stock that
you could turn into cash by challenging your working­
capital practices and policies.
Here are five classic oversights made in working capital
management.

  1. Over reliance on the Profit & Loss Account for
    devising business strategy
    Discounts offered on bulk buying stock may seem like
    an attractive idea. While it does flatter your cost of
    goods sold, there is often an unaccounted cost via the
    drain on your liquidity, as a result, slowing your asset
    return. Before you accept a bulk buying discount,
    ensure it will not carry with it a greater cost over a
    longer period of time.
  2. Rewarding sales staff for sales growth alone
    Cost discipline is very seldom applied to people on the
    front lines. Salespeople’s compensation plans in
    particular tend to be linked to unit or euro sales
    generated.
    This is a pity, because a properly motivated sales force
    can do wonders to wring more cash out of your sales.
    Sometimes all you need to do is make people aware
    that there’s more to sales than booking the deal.
  3. Overvaluing Quality in Production
    SME’s invest a lot of research and finance into quality
    increases. While many are appreciated and
    commendable, it’s not always necessary. Ensure you
    research your target market thoroughly to find out what
    matters most to them. This will allow you to redirect
    your investments to areas that matter most to your
    customers.
  4. Tying Creditors to Debtors
    Many companies relate the terms they are given by
    their suppliers to the terms they offer their own
    customers. If their suppliers tighten terms, they try to
    cover the resulting cash call by tightening their own
    credit policies.
    Debtors and creditors are entirely separate sets of
    relationships, and should be managed as such.
  5. The Application of Current & Quick Ratios
    When bankers assess their customers’ creditworthiness,
    they often think in terms of current or quick ratios—
    indicators of how much cash or cash ­equivalent a
    company can count on to meet its obligations.
    Bankers want to ensure that companies have enough
    liquid assets to repay their loans in the event of distress.
    The irony is that the more closely a company follows its
    bankers’ guidelines, the greater the likelihood that it will
    face a liquidity crisis. That’s because a higher (which to
    bankers means “better”) current ratio value is achieved
    by having higher levels of debtors and stock and a lower
    level of creditors—all quite at odds with sound working
    capital practices.

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