In a tense economic climate where business failures are rising sharply, how can you avoid going bankrupt? Profitability is no longer the only factor to be taken into account when assessing the financial health of your business. In the shorter term, adopting a cash management approach that is as close to the ground as possible can help you anticipate economic difficulties. How can you successfully implement a cash culture within your business? Here’s how.
What is cash culture?
Even if it does not have its own definition, the cash culture is part of the company’s overall financial approach. It consists of mobilising each employee to contribute collectively to optimising cash flow. It is both a lever for action and a mindset that must be instilled by and in all departments.
The aim of this culture is to act upstream to prevent any difficulties that might be linked to the company’s cash position.
This prevention policy is not just the prerogative of the finance department, even though it is at the heart of economic issues. There are opportunities to take action on all aspects of cash flow within every division! General management, of course, but also sales management, the purchasing department and all the operational departments have a role to play in securing the company’s finances. A genuine culture of cash management and its impact needs to be put in place.
Why introduce a cash culture in your company?
In other words, why not just leave the CFO (Chief Financial Officer) in charge of financial matters and involve every level of the organisation?
To ensure the long-term future of your business
First of all, it’s important for a company to have a healthy cash position. For a company, having cash means first of all being able to meet its expenses and pay its supplier invoices. One of the major causes of business failure is non-payment of invoices.
On the other hand, good cash management helps to avoid tensions: prevention rather than cure is the aim of instilling a cash culture in your business.
What’s more, cash is needed to manage and replenish stocks, but also to invest and grow. If financing is to be negotiated, it is not only sales and profits that will be scrutinised by the bank, but also cash flow. In short, a cash culture is fundamental to anticipating and avoiding bankruptcy.
To serve the interests of every member of the company
Every employee has an interest in helping to optimise the company’s cash flow. Firstly, because regardless of their position or responsibilities, their actions have a financial impact on the company’s cash inflows and outflows. For example, an improved production cycle, better stock management or negotiation of payment terms can lead to an increase in cash flow.
Secondly, because a company in good financial health keeps its employees employed and can give them a stake in the company’s results. Shareholders, for their part, receive dividends. It should be emphasised that a lack of liquidity can ultimately lead to the company’s bankruptcy. All employees, whatever their position, have everything to gain from grasping the importance of a cash culture and taking part in it.
How can you establish a good cash culture within your company?
Analyse the company’s cash flows
The finance department’s task is to scrutinise the company’s cash disbursem*nts and receipts.
The analysis enables them to determine whether it is possible to take action on both DSO and DPO, two levers that can be used to improve cash flow. Reducing collection times and extending payment times can help to boost cash flow and limit working capital requirements.
To achieve this, it is useful to put in place more frequent, even daily, cash flow forecasts, so as to be as close as possible to the company’s economic reality.
Determine the processes to be implemented
Once the cash flow has been audited, all the other indicators must also be analysed. This broader view of the company’s financial health will be used to determine the actions that need to be put in place to optimise cash flow.
This will be followed by the implementation of new processes designed to redirect the company’s actions.
This essential task can be entrusted to a Cash Manager, a key position for monitoring and optimising cash flow. The Cash Manager’s tasks include reporting and analysing cash flow forecasts and WCR, as well as improving the tools used to manage cash flow.
Raising awareness among all employees
As we have said, every employee in the company has a role to play in the cash culture. The key is to make them aware of it, and this requires effective communication and involvement.
While it is primarily up to General Management to instil a cash culture within the company, each team then has a role to play in disseminating information across the board. Meetings, training and incentives are all ways of empowering employees at all levels.
Certain teams can also have a major impact: the sales department, the purchasing department, which is responsible for stock management, and production all have a significant influence on optimising cash flow. It’s up to you to get them as involved as possible!
Managing the settlement and collection of receivables
One of the key factors in managing collections is better management of customer receivables. Knowing your customers, their creditworthiness, customer risk and any difficulties they may be experiencing can help you avoid the pitfall of non-payment.
It is just as important to use the right tools to facilitate collections. Automating these processes helps to limit customer risk and improve the reliability of cash flow forecasts. That’s why our CashOnTime Collection solution is the perfect ally for your cash culture.
What solution should you choose to develop your cash culture with peace of mind?
CashOnTime helps your company optimise its cash collections and assists you in implementing your cash management policy. Our software centralizes all your customer data and provides you with all risk indicators in real time, such as late payment by a customer or a deterioration in the customer’s credit rating. This enables you to anticipate and remain proactive in the management of your collections.
If you’re faced with non-paying customers who are damaging your DSO, CashOnTime will support you at every stage of the collection process. Its dunning process is automated and can be customised according to your criteria. As a result, you’ll be able to improve payment times for your debtors, while saving time and improving efficiency.
Instilling a cash culture within your business means optimising your cash flow. To make it easier to implement and take effective action on your collections, consider CashOnTime solutions. Our experts are at your disposal to help you get started.
