Controlling the Cash Flow – part 2
At one point product sales may be brisk and revenues over cost of goods sizable. There is no problem there. Then suddenly demand will pick up and costs will escalate—a by-product of needing more of everything to increase production and keep up with increased demand. Just about that time, a major creditor will run into a snag and will have to slow up payments.
Suddenly the company is caught in a cash crunch—more money is going out than is coming in when it’s needed. Then the company doesn’t have the capital it needs to help meet customer demand. Despite having a highly profitable profile on paper, the company isn’t receiving funds in the timely manner that it needs to pay its bills. Think of it like this: You just ordered a new car because you won $25,000 in the lottery. The dealer wants the money, but the lottery officials just told you that they can’t send the check for three months. Uh-oh.
Cash flow problems happen to all of us from time to time. If you plan sufficiently, you may avoid many of those rapids, but not all.
Tags: bank payment, cash flow, floats, management