actions you decide to make, it is essential to act early and execute strong
decisions to build up the necessary momentum to have a positive impact. One of
the biggest problems in making significant changes to any established business
is that when changes are made, there is usually a lead-time of some months
before any positive effects can be observed (____ insert). Based on the analysis
earlier on, I have set out an actionable plan on 3 significant areas for you to
focus on which will hopefully reduce your overdraft and make your business more
Analysis and Forecasting: The Definitive Guide to Understanding and Using
Published Cash Flow Data 1-119-96265-X; 1-119-96874-7 Year: 2012
Optimise on Assets:
through our ratio analysis, your company is having some efficiency issues and I
think it is essential for you to release any cash which is trapped in our
balance sheet and ensure you are making the most of all your asset holdings.
Assessment on Overhead costs:
costs refer to those expenses associated with running a
business that can’t be linked to creating or producing a product or service.
It’s important to try to assess
your overhead costs to search for potential opportunities to recude them. lowering
overhead can have a direct impact on profitability and should help us build up
some cash. Overhead
costs, Danalyn Limited has increase its admin expenses by 33% over 2 years a
Asset Productivity Report:
Secondly I would run a check on the productivity of your assets and sell
off ones which are not benefiting you. You are holding inventory for over 3
times as long in 2017 than in 2015 and have increased your inventory by 7.5
times! Even though this could be a sign of growth and expansion, It’s essential
you make some significant actions to impact your negative cash flow. Any assets
which have just been sitting in storage should be sold for more cash. It is better to improve your liquidity
than hold them as excess stock. If we
can improve in this manner, we will be in a more healthy cash position and have
great effect ony your Core Liquidity ratios.
this will also deliver an improved operational efficiency.
Faster conversion cycle of accounts receivables:
Sports Manufacturer it isn’t uncommon for payments to be held up for long
periods of time which would cause an increase in the time taken to receive your
cash. However, this process has made your cash flow cycle extremely tight. Instead
of having healthy cash reserves to invest in opportunities which would grow your
business or increase divdidentss to please investors, your money is being held up
with customers. Additionally, Studies have shown that the longer
receivables go uncollected, the less likely you are to get paid at all. Know
both of these facts, I have collated my research into a 3 step plan for you to
Building an organised framework:
A great way
to build the necessary frameworks is to produce an A/R ageing report which alls
you to track the payment status of all your customers. Orders are aggrragated
into the number of days since the invoice was issued (e.g 15 days, 30 days) and
the amounts due. Creating this, you can easily spot potential collection
problems early, act on them to ensure you are on top of all your reeivables.
Deloitte have produced an report the biggest
organisational concerns when it comes to accounts receivables so I formulate a
list of 4 things to watch on.
Incentivise early payment …
reward for early payments could be a great way to reduce your receivable days.
For example, you could offer a percentage discount if a customer pays within a
week. It’s better for
draw in some of your receiavables at a discount, the increase cash will be
beneficial due to our large overdraft.
… And Be more firm on payment
deadlines and terms
the beginning the terms of payment have to be made clear so as to get credit
period as low as feasible and ensure customers are satisfied. As time goes on,
reminders should get more firmer. If necessary, dunning
clients that legal action may commence if payment isn’t received by a certain
with a gentle reminder that payment is now past due — this is usually
sufficient to prompt most clients to pay right away. Firmer communications may
become necessary if payment is not forthcoming within a reasonable amount of
time, including dunning letters informing clients that
legal action may commence if payment isn’t received by a certain deadline. In
this scenario, you could offer the client a payment
the amount that’s past due.
Improve Balance Sheet efficiency:
ratios are not looking good,
current liabilities, Current ratio and
acid ratio and balance sheet all show this. Concerns: will they be able to pay
these back soon? Not in cash, they will from overdraft. Leads to another
concern: will they be able to pay back overdraft (payable on demand)
Sweep bank accounts
sweeping should be availed in the bank accounts which almost every bank and the
financial institution are providing. Sweeping is a facility by which excess
fund are transferred from current account to another account which fetches
interest on that fund. At the same time, these funds are available to use when
for Longer Payment Cycles:
As seen in
our ratios payable dats Some vendors are quite finicky about being paid
quickly. But others are not. Try and negotiate longer payment cycles with them.
Get them to give you discounts. You can hold on to your money longer and also
pay a little less than what you would have had to previously.
Since they concern the short term, they are harder to solve and require
urgent measures to fix when they are in trouble. Businesses have gone broke for
lack of liquidity.
payments faster, we can generre