Introduction:

Process Street - Cash Management Process

“Never take your eyes off the cash flow because it’s the lifeblood of business.” - Sir Richard Branson

Process Steet’s Cash Management Process is a guide to aid the management of your business's cash flow. As a small business owner, you can use this template on a quarterly basis, to continually assess how you can improve your business's cash flow to ensure business success.

Process street has condensed the cash management process into the following steps:

  • Credit control procedures 
  • Regular sale forecasts 
  • Good supplier terms
  • Stock control measures 
  • Control spending
  • Reduce unnecessary costs 
  • Produce and read financial reports 
  • Goal review 

Cash management as a procedure lays its roots from two seemingly unrelated methods of finance; owner financing and factoring.

Owner financing as a process involves the acceptance of a signed document stating the sum of the delivered product or service.

Factoring is the sending of an invoice to collect money at its due date.

Take both owner financing, and factoring, and provide time for the evolution and change of natural business cycles, and you have the emergent of cash management as a financial procedure.

As an area of finance, cash management is very broad, covering cash collection, handling, and usage. Process Steet’s Cash Management Process considers cash management in the sense of ensuring that your business has enough cash.

The aim of Process Steet’s Cash Management Process is to ensure cash flow running into your business is greater than the cash flowing out from your business.

82% of small businesses fail due to poor cash flow. It is clear that successful cash flow management is essential for your business success. Cash flow management has even been termed as the most important job when it comes to running a business.

In this template, you will be presented with specialized questions given as a form field. Different form fields are used, such as subtasks, dropdown menus, short answers, long answers, and weblinks.

You can populate each form field with your own specific data. This data is compiled for you to easily set your own targets. Using our dynamic due date feature, the targets can be reviewed. 

In addition, our stop task feature has been used to enforce task order when needed, and our conditional logic task has been used to guide you through the correct process path specific for your entered data.

Record checklist details

In this Cash Management Process, you will be presented with the following form fields, which you are required to populate with your own specific data. More information is provided for each form field via linkage to our help pages:

To begin the Cash Management Process, enter the required details into the form fields below.

Credit control procedures:

Send the invoice

The first step of Process Street's Cash Management Process is to ensure you have the appropriate credit control procedure in place.

Consult your current credit control procedure and ensure the following steps are being carried out.

Check off each step if you can confirm your credit control procedure includes such as step.

You can state whether each step within our recommended credit control process is met by your own credit control procedure using the drop-down menu provided. 

You can then add notes for each step, indicating successes and areas for improvement.

  • 1
    Send invoice immediately after goods or services have been provided
  • 2
    Ensure payment terms are included on invoices sent

Check-in with the customer

  • 1
    Give customers a courtesy call after X number of days. For example, if you have 30-day payment terms, after about 14 days, give the customer a courtesy call.
  • 2
    If the customer has received the invoice, ask the customer what day they will make payment.

Carrying out custody calls eliminates the possibility of a customer telling you they never received an invoice after the due date.

Chase-up with the customer

  • 1
    If the payment becomes overdue, then give the customers another custody call as a reminder.
  • 2
    Decipher if the customer is having issues with making payment.
  • 3
    Follow up on calls made with an email

Provide the first warning

  • 1
    If the invoice is not yet paid a week later, send a warning letter to the customer indicating they have X number of days to pay you.
  • 2
    If you offer a service, put the services on offer on hold or on stop until payment is made.

Consult a third party debt collection agency

  • 1
    Pass the debt to a professional debt collection agency.

If you have spent a lot of time chasing payment, then the most cost and time effective way would then to outsource the payment chasing.

Review your credit control procedure

Review why your credit control procedure failed

Based on the previously outlined criteria for the creation of a good credit control procedure, you can set your own personal targets to achieve the best credit control procedure for your business.

The dropdown menu represents a conditional step in this process. By selecting 'Yes' or 'No', you will be directed to the relevant steps in the Cash Management Process.

This task uses our dynamic due date feature. Once a date has been set to review the targets, you will be reminded a day before this date in regards to the upcoming due task.

The notes you made in regards to each step of the credit control process have been summarized in the below.

Areas for improvement should have been highlighted, and these have been mentioned below as a reminder. 

Send the invoice 

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Check-in with the customer

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Chase-up with the customer

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Provide the first warning

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Consult third party debt collection

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Email targets set: credit control procedure

You can email the set targets to relevant personnel using our email widget below.

Regular sales forecasts:

Adjust your sale forecasts

See Process Street's Financial Planning Process (link) and Financial Plan Template for information on how to calculate the most essential financial forecasts.

The number of times you conduct financial forecasts is dependent on the length of your sale cycle and the size of your business.

Small businesses will be required to conduct/evaluate financial forecasts more frequently. Small businesses are most likely to evaluate forecasts on a quarterly basis.

In addition, if your product/service cycle is a long cycle, the evaluation of your financial forecasts will not be needed as frequently as if your product/service provided has a short cycle.

Financial forecasts can be conducted annually, quarterly, monthly or biweekly.

Refer to your financial forecasts, and ensure that you have the following information:

  • 1
    An estimate for future net revenue.
  • 2
    An estimate for future cash flow.
  • 3
    An estimate for future profit.

Please note companies that have not been operational for too long have sale goals rather than sale forecasts. Sale forecasts are determined based on an organization's previous sales, whereas sale goals can be set with little past data available to set a forecast.

Consult your financial forecasts

You can use your financial forecasts to help you understand the cash you are likely to have, and when, during the running of your business over a set time.

Financial forecasts should be as realistic as possible and should closely match reality.

You can use our file upload widget to upload relevant documentation detailing the financial forecasts made.

Alternatively, you can use your web link form field to provide the URL of online documentation, such as Google excel.

The dropdown menu represents a conditional step in this process. By selecting 'Yes' or 'No', you will be directed to the relevant steps in the Cash Management Process.

This task uses our dynamic due date feature. Once a date has been set to review the targets, you will be reminded a day before this date in regards to the upcoming due task..

Email targets set: financial forecasts

You can email the set targets to relevant personnel using our email widget below.

Good supplier terms:

Review your supplier relationship management procedure

'Having long-lasting, trusted relationships with dedicated suppliers should be a primary goal of any business that strives to succeed in the market'

To obtain good supplier terms, it is vital to set up good supplier relationships. Good supplier relationships can be obtained by implementing a successful Supplier Relationship Management plan.

Build mutual trust and loyalty with suppliers

  • 1
    Inform suppliers about your processes such as new products or promotions.
  • 2
    Listen to supplier concerns.

Use technology to manage supplier relationships

  • 1
    Record and keep track of information about suppliers
  • 2
    Create. process and track purchase order with your suppliers

Ensure timely payments 

  • 1
    Ensure control measures are in place to deliver timely payments to suppliers.
  • 2
    Ensure a system is in place to inform suppliers when payment may not be made on time.

Work to form a good relationship 

  • 1
    Regular effective communication is maintained, keeping suppliers regularly informed and up to date.
  • 2
    Indicate issues you have in good time to work with the supplier to resolve.

Obtain a quality service and materials at the right price 

  • 1
    If you have the financial flexibility to buy in bulk, buy in bulk.
  • 2
    Pay suppliers in advance if advance payment generates a discount.
  • 3
    Obtain the correct balance between quality and price for your business. Consult your business's target audience and required business reputation.
  • 4
    Ensure service is reliable and efficient.

Detail agreements 

  • 1
    Record expectations from both parties in regards to the service you require and the service your supplier provides. For example, item or service description, price, delivery terms, payment terms, communications, etc.
  • 2
    Have both parties sign read agreements.
  • 3
    Produce a workflow for your team indicating the processes involving suppliers. This ensures the team understands the processes and can identify when things go wrong.

Evaluate the risks 

  • 1
    Determine how the supplier deals with crises.
  • 2
    Determine how long the supplier has been in business.
  • 3
    When was the last time the supplier had to deal with a crisis?
  • 4
    Consult supplier reviews and references.
  • 5
    Does supplier have the capacity to deal with your orders?
  • 6
    Are the suppliers financially stable?
  • 7
    Are the supplier competitively priced?
  • 8
    Do the suppliers have the right experience?

Dedicate a supplier relationship management team

  • 1
    Assign a manager to supplier relationship management
  • 2
    Create a documented process to guide the required team through the management and administration of suppliers.

Think global

  • 1
    Consider the benefits of using a global supplier.
  • 2
    If using suppliers located in another country, consider cultural differences when communicating with those suppliers.
  • 3
    Consider currency, VAT rate, and other financial differences when dealing with global suppliers.

Get everybody onboard

  • 1
    Get everyone on board to work to create excellent supplier relationships.

Set Supplier Relationship Management Targets

Based on the previously outlined criteria for the creation of a good Supplier Relationship Management strategy, you can set your own personal targets to achieve the best supplier relationships

The dropdown menu represents a conditional step in this process. By selecting 'Yes' or 'No', you will be directed to the relevant steps in the Cash Management Process.

This task uses our dynamic due date feature. Once a date has been set to review the targets, you will be reminded a day before this date in regards to the upcoming due task.

Email targets: Good supplier terms

You can email the set targets to relevant personnel using our email widget below.

Stock control measures:

Review current stock levels

If your business provides a product for sale, it is important to ensure you have the right level of stock to satisfy the customer. 

Running stocks too low will lose business, but running stocks to high will cost you money. The estimated cost of holding stock is 10-30% of the stock's value. 

Costs are incurred through stock storage, insurance, keeping accurate records and controlling stock for theft avoidance. 

A right balance is needed for the amount of stock you own.

 You firstly need to review your current stock levels and stock sale volumes

  • 1
    Determine your current stock levels
  • 2
    Determine the current value of your stock
  • 3
    Look at your sale records, identify good selling stock items and stock items that do not sell so well (remember to consider seasonal trends).
  • 4
    Consider the gross margin for each product, and determine which items are most profitable.

Create an action plan to move both slow moving stock items and items in excess. 

For example, you can sell the stock items at a discounted price below the items price. The money obtained from doing this can then be used to buy new stock. 

Slow-moving stock items could be donated to charity. Supporting a charity can support a business by increasing employee morale, provide marketable benefits, providing tax benefits and by helping the community. 

See Process Street's Financial Plan Template to determine how to calculate gross margin.

We recommend you have a procedure in place to keep track of individual stock items. Accounting or stock control software can do this.

Update your current stock records

Your Financial Policies and your Procedures Manual should include a policy to track the stock movement. This will help you record the stock and its movement to aid the stock re-ordering process. 

  • 1
    Update your stock records.
  • 2
    Update your Financial Policies to include a policy tracking stock movement.
  • 3
    Update your Procedure Manual to include a policy tracking stock movement.

Establish a stock control policy

The next action to take to control your stock is to implement a stock control policy

  • 1
    Identify the stock you always need and make sure you have sufficient supply.
  • 2
    Tighten the process of buying stock. Make sure you know the volume of sales for each stock item to determine the stock quantity needed.
  • 3
    Keep accurate stock records, and match these records to regular physical counts.
  • 4
    Negotiate deals with suppliers. You should have an effective Supplier Relationship Management procedure set up to aid negotiations.
  • 5
    Do not let discount prices drive your decisions when buying stock.
  • 6
    Consider the impact of ordering less stock more frequently under a regular delivery schedule. This can save money, improve liquidity and reduce the stock quantities at a given time, without reducing sales.
  • 7
    Consider the impact of marketing and promotion. If launching a promotion, make sure you have enough stock.
  • 8
    If you have taken on more stock than usual, be sure to have a backup plan if you do not sell it.

With a large difference between the stock records and the physical count, continue the physical count more often until the cause of difference has been established.

Review your sale policies

When reviewing your current sale policies, the final dropdown form field provided is a conditional step in this process. Selecting 'Yes' or 'No' will direct you to the relevant stage in the Financial Plan Template. 

Review your current sale policies. Ensure they are as required. 

Re-review your sale policies

Use stock turn rate to help you plan

The 'Stock Turn Rate' is a calculation you can use to check if your stock planning is effective

A low stock turn rate means the movement of your stock is slow, which leads to higher holding costs and old stock.

A high stock turn rate could mean you do not have enough stock on hand to supply the customer needs.

Follow the steps below to calculate the stock turn rate:

  • 1
    Determine your cost of goods sold
  • 2
    Determine the cost of stock on hand
  • 3
    Divide the cost of goods sold by the cost of stock on hand

Stock Turn Rate = Cost Of Goods Sold / Cost Of Stock On Hand 

The Cost Of Goods Sold (COGS) refers to the costs directly attributable to the production of goods sold in a company. 

The Stock On Hand is the number of goods, for example, finished products, a company has available at a given time.

Interpret your stock turn rate

Manufacturing stock turn rate usually varies from 4 to 21 times. You can review your stock turn rates for each product to determine whether you want to order more stock of the product in, or order less.

  • 1
    Products with the highest stock turn rates are your best sellers, consider ordering more stock in.
  • 2
    Product with low stock turn rates are your slowest sellers, so consider ordering less.

Set a date to review stock control targets set

Based on the previously outlined criteria for the creation of good stock control measures, you can set your own personal targets to achieve the best stock control measures for your business.

The dropdown menu represents a conditional step in this process. By selecting 'Yes' or 'No', you will be directed to the relevant steps in the Cash Management Process.

This task uses our dynamic due date feature. Once a date has been set to review the targets, you will be reminded a day before this date in regards to the upcoming due task..

Stock Control Targets

You set the following targets to improve your stock control measured:

To reduce current stock levels:

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To improve your stock control policy:

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To improve your sale policies:

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To improve your stock turn rate:

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Email targets: stock control measures

You can email the set targets to relevant personnel using our email widget below.

Control spending:

Consult your budget plan

Controlling your business expenditure must begin with ensuring you have a well-developed budget developed and managed.

See Process Street's Budget Process 

  • 1
    Ensure you have a well-developed budget plan defined to control your business spending.
  • 2
    Ensure that you have a management plan in place that assures your spending maintains alignment to your set budget.

Reduce unnecessary costs:

Reduce supply expenses

Even the smallest reduction in business expenses can have profound benefits to your companies success.

It is important to take a step back and look at your current business expenses to assess what you are doing well and what can be improved upon.

  • 1
    Consider large discount suppliers as alternatives. But do not compromise the quality of service/products too much.
  • 2
    Consult your stock turn rate to refine your stock expenses, (required for businesses selling a product).
  • 3
    Consider supplies not vital for the functioning of your business, for example, office supplies. Can these be reduced?
  • 4
    Are there service costs to be reduced, for example, office canteen hours?
  • 5
    Cuts environmental costs.

See Process Street's Environmental Accounting Internal Audit to reduce your environmental costs.

There is a fine line between reaping positive effects of cost-cutting employee benefits and experiencing diminishing returns if benefits are cut too much employee morale is reduced. You need to ensure employee morale is kept at a sufficient level so employees are productive, want to work for you, are motivated, and have high self-esteem and satisfaction.

Cut production costs

  • 1
    Cut material costs.
  • 2
    Sell leftover materials or products.
  • 3
    Use waste created where possible.
  • 4
    Centralize or consolidate space necessary for the production of your product or the delivery of your service.
  • 5
    Lease unused space.
  • 6
    Track and measure the operational efficiency of your business or service. For example, is time being wasted in the service you provide?
  • 7
    Optimize the efficiency of your business.

Lower financial expenditures

Consult your insurance policies and financial accounts for places to save money.

  • 1
    Compare providers of insurance to see where you can save money. Select the most competitive rates.
  • 2
    Consolidate bank accounts and insurance policies if possible.
  • 3
    Evaluate your insurance policies, make sure you are not duplicating coverage or you are over-insured.

If you are looking into business expansion, make sure to carry out the necessary procedures outlined below.

  • 1
    Complete a thorough cost-benefit analysis.
  • 2
    Produce a thorough future forecast.
  • 3
    Consider the opportunity costs of expansion and the negative impacts of increased debt payments on your cash flow.

Excess debts can impact companies ratings, interest rates and the ability to borrow in the future.

See Process Street's Financial Planning Procedure template to understand how to create a thorough future forecast. 

Modernize your marketing efforts

Review your marketing methods to refine.

Maintain and invest in advertising methods that are working, but also consider cheaper alternatives and do not sacrifice impact.

  • 1
    Build a customer e-mail list and implement a referral program.
  • 2
    Establish a networking plan, to network more. Networking is a great way to get your business name out there without an advertising expense.
  • 3
    Do more in-house marketing to cut marketing costs.
  • 4
    Increase social media marketing to reduce the reliance on more expensive traditional methods.

Use efficient time strategies

Wasted time, equals wasted money. Be sure your business processes are optimized and efficient.

Adopt checklists such as this one have been shown to increase business efficiency. You can create checklists similar to this one for any business process using Process Street

  • 1
    Minimize distractions.
  • 2
    Utilize checklist software such as Process Street.
  • 3
    Set expectations for a reasonable amount of time to complete certain tasks or activities. Continually review these expectations based on employee feedback to refine.
  • 4
    Offer incentives for meeting or exceeding those expectations.
  • 5
    Consider providing additional employee benefits to improve employee morale and consequently employee productivity and motivation.
  • 6
    Create scheduled business activities, and schedules for each department and employees where relevant. Encourage employees to adhere to these schedules.
  • 7
    Schedule a pre-determined block of time for meetings. Make it clear it is expected participants are on time. Stick closely to the meeting's agenda.

Harness virtual technology

Harnessing the use of technology can offer a virtual manner of doing business. 

  • 1
    Consider virtual meetings to reduce travel costs.
  • 2
    Centralize company documents by using online software such as Google documents.

Narrow your focus

Narrowing your business means limiting the types of services or products you offer. This allows you to refine a small subset of products and services you offer to improve your bottom line.

  • 1
    For product-based businesses, consider the stock turn rate. Limit the products you provide. Provide products with higher stock turn rates.
  • 2
    Consider limiting the services you provide. Provide the services in highest demand only.
  • 3
    Consider subcontracting some business processes to maximize capacity without turning away profitable business.

Make the most of your space

Consult and analyze your current space and how it is being used.

  • 1
    Consolidate and centralize different functions or departments for your business where appropriate.
  • 2
    Use spaces for dual purpose.
  • 3
    Lease out unused space.
  • 4
    Consider your furniture and machinery placement, and how efficiently this uses the space available.
  • 5
    Is your storage overflowing due to too many supplies? Consider reducing supplies ordered in.

Maximize employee skills

Employees are a company's greatest asset - they're your competitive advantage. You want to attract and retain the best; provide them with encouragement, stimulus, and make them feel that they are an integral part of the company's mission. - Anne M. Mulcahy

As stated by Anne M. Mulcahy, a highly successful American businesswoman, employees are your companies greatest asset. 

It is important to assess how you are utilizing the skills of your employees, and are you motivating your employees to work to the best of their ability and be productive.

  • 1
    Give responsibilities to employees with the most skills and efficiency in those areas.
  • 2
    Provide appropriate employee benefits to boost employee morale.
  • 3
    Establish an employee feedback system, where you can obtain information on how to improve the running of your company and ways to boost employee morale.

Focus on quality

By providing a quality service or product, you will obtain positive referrals and repeat purchase

Once you have established a good reputation you can charge higher prices as customers we will be willing to pay to use you, as opposed to another business with a not-so-good reputation.

Review your set targets to reduce unnecessary costs

Based on the previously outlined criteria for reducing unnecessary costs, you can set your own personal targets to reduce unnecessary costs in your business.

The dropdown menu represents a conditional step in this process. By selecting 'Yes' or 'No', you will be directed to the relevant steps in the Cash Management Process.

This task uses our dynamic due date feature. Once a date has been set to review the targets, you will be reminded a day before this date in regards to the upcoming due task.

Reduce Unnecessary Costs Targets

Reduce supply expenses 

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Cut production costs 

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Lower financial expenditures

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Modernize your marketing efforts 

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Use efficient time strategies 

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Harness virtual technology 

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Narrow your focus 

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Make the most of your space 

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Maximize your employee skills 

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Focus on quality

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Email targets: reduce unnecessary costs

You can email the set targets to relevant personnel using our email widget below.

Produce and read financial reports:

Produce financial reports

The importance of financial report production cannot be underestimated

Financial reports provide you and potential investors with the required information in regards to your business. 

Financial reports help you make good management decisions. and are vital for business success.

  • 1
    Create an Income (Profit and Loss) Statement
  • 2
    Create a Cash Flow report
  • 3
    Create an Accounts Receivable report
  • 4
    Create a Balance Sheet Statement
  • 5
    Create a Financial Plan

Read the financial reports and spot the warning signs

By consulting your financial reports, you will be able to see warning signs of potential cash flow issues which could arise. For example:

  • Increased in interest rates
  • Changes to currency exchange rates
  • Changes to supplier rates
  • Weather changes
  • Seasonal changes
  • Changes in government policy

You should spot these warning signs in advance and produce a plan to mitigate against them.

Goal review:

Review credit control targets

Our dynamic due date has been used in this task. This task is due for completion 1 day before the set due date for credit control target reviewal.

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Review sale targets

Our dynamic due date has been used in this task. This task is due for completion 1 day before the set due date for sale target reviewal.

{{form.Set_targets_based_on_identified_areas_of_improvement_for_the_sale_forecasts.}}

Review supplier relationship targets

Our dynamic due date has been used in this task. This task is due for completion 1 day before the set due date for supplier relationship target reviewal.

{{form.Set_targets_to_achieve_supplier_relationship_improvements.}}

Review stock control targets

Our dynamic due date has been used in this task. This task is due for completion 1 day before the set due date for stock control target reviewal.

{{form.Summarize,_based_on_the_above,_areas_for_improvement_in_your_stock_control_measures.}}

Review targets to reduce unnecessary costs

Our dynamic due date has been used in this task. This task is due for completion 1 day before the set due date for reducing unnecessary costs target reviewal.

{{form.Set_targets_to_achieve_these_required_improvements_to_reduce_unnecessary_costs.}}

Identify reasons why targets have not been met

Re-review targets

Our dynamic due date has been used in this task. This task is due for completion 1 day before the set due date for target re-review.

This is a stop task, this checklist cannot be completed until it is confirmed set targets have been completed. If targets have not been met, review previous tasks to ensure an effective action plan is drawn up for target completion.

Be sure to be realistic about what you can achieve as a business, especially if you are regularly facing cash problems.

  • 1
    All set targets to improve business cash management have been met

Sources:

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