Updated: Oct 12, 2021
Companies operate on money. Without the ability to control money the business is out of control. At its core, control of money means properly accounting for income, expenses and managing the flow of money in & out of the business. If a business had to track one thing, cash-at-bank wins. Cash-at-bank = Money In - Money Out.
Money-in is your right to get paid. How many days does it take to turn sales into cash-at-bank? The lower the days, the better. Money-out is your obligation to pay. How much savings can you achieve on input cost? A 5% savings on payable/bill is a 5% uplift to your cash-at-bank. The goal is not to conserve your cash-at-bank (e.g. delay vendor payments). The goal is to reduce the amount you are obliged to pay.
Central to this is the accounts and finance team. Whilst sales generate revenue and purchasing reduces input cost, it is the accounts and finance team that keeps the cash-at-bank balance healthy. A hard job made difficult by the chain reaction a delayed payment causes. Chasing overdue receivables whilst juggling the cash-at-bank balance to pay vendors is stressful and unappreciated. The focus to make collection and disbursements easier with on-line payment options, mixed with reminders and batch payment capabilities have all seen success with getting paid or paying on time.
To turbo-charge the cash-at-bank equation, forward thinking accounts and finance teams are now using automated early payment discounts & payments technology to achieve their cash-at-bank goals. In our article (don’t discount what you sell article), the reorganisation of sales discounts as payment discounts improves the cash-at-bank equation dramatically, by incentivising early payments to turn sales into cash, quickly and easily.
On the flip side, the ability to propose a reduction in bills in exchange for earlier payment is an improvement to the cash-at-bank equation (e.g. instead of paying $5,000, now it is $4,750, $250 improvement). The wonderful thing about this approach is the choice, flexibility and non-confrontational manner in which these early payment discounts can now be accepted and executed, with minimal disruptions to sales and finance processes.
Getting the cash-at-bank right earns business owners the confidence and flexibility to take calculated risk through growth stages or insulate the business through risky periods. Without it, it’s near impossible.