Creating working capital and cash flow efficiencies: liquidity attainable with cash management strategies.

• Author: Stewart, Tammy
• Position: FINANCE

Businesses in Alaska and throughout America are facing challenging times. With a weakened economy and limited resources, companies--regardless of size and industry--need to ensure they are maintaining positive cash flow and liquidity in today's recessionary environment.

By employing specific cash management strategies focused on optimizing receivables and liquidity, a business can maximize its availability of working capital, even in these tough times. Essentially, you need to make sure you are in control of your payments.

Technology is also a tool that can be utilized to improve overall efficiency and cut costs. For example, Alutiiq LLC, a subsidiary of Afognak Native Corp., has used remote deposit checks online services to save the company both time and money. Yet, technology is not a replacement for a back-to-basics approach to cash management, which is the foundation for an effective working capital strategy.

OPTIMIZING CASH FLOW

The first step for businesses is to develop a plan to optimize cash flow. According to a 2007 study by the Association of Financial Professionals, more than two-thirds of the respondents considered effective cash forecasting to be the greatest challenge to optimizing cash and short-term equivalent investments.

There are two major barriers to effective cash forecasting. First, cash forecasting involves input from many different individuals, causing the models to become unmanageable. Second, basic spreadsheets are not a strong tool for monitoring data input and subsequent amendments to that data. Being able to access timely and accurate information is essential to effective forecasting. Banks and vendors continue to develop online tools to improve cash flow forecasting, which remains an evolving process.

By working closely with your banking partner, you can overcome these challenges and implement cash forecasting that will allow your business to optimize its cash flow. Specific cash flow areas to consider include reduce days sales outstanding, optimize days payable outstanding, minimize collection float and optimize cash concentration. Your banking partner will be able to select solutions best suited for your business' needs.

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Forecasting with certainty will fundamentally inform the way you think about nearly every other aspect of your working capital process.

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LOOKING AT RECEIVABLES

When taking a closer look at your receivables process, it is critical that you first...