Are you Invoicing Correctly?

Entrepreneurs should focus on working capital management for their businesses and a key component is reducing their DSO.

A key component that affects DSO is the accuracy of your invoices to customers. Is your invoicing process reliable, accurate and consistent?

The invoicing process should not only be consistent and timely, but it should also be accurate. If your invoices do not reflect the system needs of the customer, it will delay the payment process affecting your DSO. Ensure that the invoice that you send to each customer reflects the requirements of the customer to pay on a timely basis.

Audit and streamline your invoicing process to reduce DSO.

Ravi Patel

www.patelCFOservices.com

Offer Payment Plans for Securing a Deal

In this economy securing a deal is of paramount interest to companies. The major roadblock, if technical issues and price are not factors, is how to pay for the deal.

Entrepreneurs can remove this roadblock by being creative in offering practical  payment plans. If your margins are adequate, offering scheduled level payments or forms of declining or increasing payments over a period might be enough to secure the deal.

Long term clients with good credit history are always good candidates for creative financing for continued business.

Ravi Patel

www.patelCFOservices.com

Analyzing the Cash Flow Cycle

When is the last time you have analyzed the cash flow cycle in your business?

Understanding the cash flow cycle is crucial to working capital and cash management. It is important to determine when cash is generated and spent in the business and the duration of the cycle. What are the bottlenecks and what can you do to speed up the cycle?

Entrepreneurs interested in improving cash flow in their businesses need to first analyze the cash flow cycle.

If we can assist in the process, please contact us at Patel CFO Services (www.patelCFOservices.com)

Ravi Patel

www.patelCFOservices.com

Days Payables Outstanding (DPO)

Similar to Days Sales Outstanding (DSO), a useful measurement for payables management is Days Payable Outstanding (DPO).

DPO is an indicator of how long the company is taking to pay its trade creditors. It is usually calculated by dividing Accounts Payable by Cost of Sales and multiplying it by the number of days. It can be tracked monthly or quarterly.

Entrepreneurs interested in cash management might want to supplement the DSO metric with DPO. Tracking these metrics reflects how well working capital components are being managed.

Ravi Patel

www.patelCFOservices.com

Collections Performance Measurement

For Entrepreneurs, collection of accounts receivable balances on a timely basis is an important contributor to cash flow. The faster the collections, the better the cash flow.

How do you measure your collection process? How do you know that it is working well and your company is continuously improving its collection efforts?

One potential metric is Days Sales Outstanding (DSO). If you calculate your monthly DSO and monitor the trend, you will see the efficacy of your collections efforts.

For more information, please contact Patel CFO Services at www.patelCFOservices.com

Ravi Patel

www.patelCFOservices.com

Spending versus Investing

Entrepreneurs watch, as they should, their cash outflows very carefully. But, do they realize if they are spending or investing their money?

Spending money involves payments for costs of goods and services (such as inventory, supplies, labor, travel), compliance requirements (taxes, fees, licenses), or overhead (rent, utilities, office expenses). These provide short-term benefits.

Other forms of payments or outflows have returns over a period. These are usually for marketing, hiring, training, improvements, real estate, machinery and equipment, and such.

Differentiating between spending and investing is useful for decision-making. Controlling spending and investing wisely offers the optimum path for Entrepreneurs.

For more info please contact us at Patel CFO Services at www.patelCFOservices.com

Ravi Patel

www.patelCFOservices.com

Working Capital Improvement

Entrepreneurs should be and are often focused on cash management in their businesses.

Improving your working capital is a part of overall cash management. Entrepreneurs sometimes focus on receivable collections as a means to improve working capital. While this is a significant component of working capital, Entrepreneurs should broaden their scope.

Improving working capital requires a review of all components of working capital and developing specific plans to improve every item.

For assistance in this area, please contact us at Patel CFO Services at www.patelCFOservices.com

Ravi Patel

www.patelCFOservices.com

Cash Flow Management

I argue that cash flow management is the most critical factor in an Entrepreneur’s ability to successfully grow a business. Yet more often that not, Entrepreneurs react to cash flow problems rather than actively managing this area.

Entrepreneurs need to ask themselves what metrics they are using to monitor cash flow. Are these the appropriate measures? How timely are such metrics?

What type of tools are Entrepreneurs using to manage and more importantly increase the available cash in their business? Are these tools continually refined to make them effective?

Entrepreneurs would be better served to proactively manage their cash flows, or at least monitor this important area if such management is delegated to others in their organization.

We will post specific items on cash flow in future blogs. For more information now, please contact us at www.patelCFOservices.com

Ravi Patel

www.patelCFOservices.com