Wednesday, July 29th, 2009
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
Posted in customer demand, money spending, online bank, payments, real estate | Comments Off
Wednesday, July 29th, 2009
Managing the finances of a business is not as easy as simply making sure your department or company always has more money than it spends. Business assets—of which cash is just one small part—are as prone to change as any other aspect of business. Planning for all business contingencies is part of the management equation, it’s critical to your role as a nonfinancial manager and the success of your department.
As long as there are businesses, cash availability will continue to be a problem for all of the people some of the time and some of the people all of the time. (Although the latter group does not stay in business very long.)
Tags: bank payment, floats, management
Posted in money spending, online bank, payments, taxes | Comments Off
Wednesday, July 29th, 2009
If your company’s greatest concern is excess funds, not excess time, the A/P system can signal the availability of excess and investable funds that won’t hurt cash flow or threaten financial security. These are called disbursement options and can be managed in three ways: presentment reporting, balance reporting, and sweep accounts. Well describe them here, although you don’t need to understand them completely. But you certainly should better appreciate what your accounting department does!
Presentment reporting refers to the amount of checks presented to the bank for payment each day, an amount impossible to predict due the various floats applied by each individual vendor. Your firm establishes a separate disbursement account at the bank for the payment of those checks. The bank then reports to your company before noon the number of checks and amounts presented for payment, funds are then applied to that account to satisfy those checks. No extra funds are required on deposit for that day, allowing more for investment.
Tags: bank payment, floats, vendor
Posted in global market, loans, payments | Comments Off