Cash is King and May Just Save Your Business

May 5, 2016

You’d expect it to be a good thing when business conditions are improving and companies are getting busier, but you might be wrong.

More and more businesses are learning what the loss of a credit line is doing to their business the hard way. As customers increase their orders and new customers call you to place an order, many companies are finding themselves "between a rock and a hard place."  

Companies who you have been shipping to long-term, well-established customers are no longer discounting their invoices, but have often gone to 60-90 day payment terms as a result of their customers stretching out their payments. 

In addition to cash being tied up in receivables, businesses are finding their payables to suppliers suddenly being harder and harder to pay as most businesses do not have a bottomless checkbook. With good help being so hard to find, many business owners are opting to pay their people vs. an invoice to keep the company open.  

Businesses are finding it hard to accept orders from new customers since many of their suppliers have “shut them off” until businesses can pay back what they owe. 

Here’s the challenge: companies have huge receivables, which is good, but they don’t have money to pay the current bills.

Companies must be extremely vigilant to make sure to pay attention to their cash flow and balance their orders between new and old customers. A number of manufacturers have gone back to factoring (which is the selling of receivables to a legitimate business in exchange for immediate cash). 

The receivables are often discounted to allow the factor to make their profit for the service they provide.

This information is important because in a rising economy a large number of companies get caught in "the squeeze" and are forced to close their business when they are in fact very busy.

The WPMA always works to provide members with programs and services to help companies succeed in a challenging environment.

Individuals with questions may call WPMA’s Executive Director Philip Bibeau at 978-874-5445.

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