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A business can increase its cash flow from operations (or operating activities) by looking closely at each of its current assets and current liabilities. For instance, a manufacturer should examine its inventories of materials, work-in-process, finished goods, and supplies to identify the inventory items which have not turned over in a long time. Those items may need to be scrapped so that a loss can be reported and cash will not flow for income taxes. It may also mean less cash flowing out for new materials. Reviewing the turnover of each and every item may allow the company to reduce the inventory quantities thereby freeing up cash that would have been sitting in inventory.
Accounts receivable needs to be monitored to be certain that every customer is adhering to the agreed upon credit terms and that the terms are consistent with your industry. You need to get those receivables turning to cash. Accounts payable should be reviewed to be sure that your company's cash is not being paid to suppliers prior to the required payment dates.
In addition to the in-depth review of each of the current assets and current liabilities, companies need to review its staffing in light of current levels of business and the recent advances in software and technology. Perhaps the company can function just fine with a few less salaried employees.
Lastly, the selling prices of some of a company's products, especially those that require lots of complex activities and result in many inefficiencies and headaches, may need to be increased.
We must also do the following to increase cash flow:
1. Collect on invoices that are past due. If you have customers that owe money for a longer period of time than they really should have, tighten the belt on those customers. Dedicate effort in your accounts receivables to decreasing the number of unpaid invoices. Take these customers to court if you have to in order to increase your cash flow.
2. Sell more products or services. Your organization can increase its cash flow somewhat easily by bringing in more sales. This can be done by hiring additional sales people or increasing your target market size.
3. Invest the money you have that's lying around. Cash flow can be fairly quickly generated by putting stagnant money to work for you. If you aren't investing money that is just sitting in an account collecting dust, you aren't using your money to its full potential.
4. Take longer to pay your bills. You can perform an accounting trick to make it look as though you have more cash flow than you actually do. If you avoid paying your bills until the absolute deadline, you can have extra cash on hand instantly.
5. Collect your money up front. Change your policy on sales to collect money from sales at the outset, so you don't have to offer credit to a company and you don't have to wait for the money to come in. Collecting the money up front might cost you some customers, but it automatically increases your cash flow.
Cash flow can be increased from operations through adopting a host of measures including:
1- Increasing sales including cash sales.
2-Increasing the ratio of cash sales to total sales (cash & credit).
3-Improving the collection of debts especially trade debts. Improvement involves shortenening the credit period, granting discounts on early settlement of debts, and enhancing collection procedures.
4-Factoring receivables.
Cancelling credit sales in the hope of increasing the cash flow from operations can prove to be counterproductive as there is a direct proportional relationship between the volume of sales and selling on credit. Rather, the above procedures should be adopted.
Hi below mentioned facts will increase business cash flows from operations activities as follows:
1. When Net Profit Increase.
2. When Trade Payable Increase
3. When Depreciation become high
4. When Advances from Trade receivable increase
5. When Inventory Value Decrease
6. When Trade Receivable Decrease
7. When Gain on Sales Decrease
8. When advances to Supplier Decrease
1. Aggresive marketing through all channels of distributions.
2. Sale on cash basis.
3. Promotions and attractive offers
more sales , sales and sales only
Strict controlling of Credit by constant review of Ageing Analysis of receivables alongwith incentives to increase the sales.
Increasing Cash Sales by providing attractive rates for cash sales, incentives to sales persons for cash sales.
Giving cash discount to credit customers, who settle invoice immediately as per our requirements
Give incentives to Collection executives.
Develop and grade customers having good creditworthiness in the market and factor the receivables
*Sales on cash basis will be the most importtant factor.
*Recovery procedure need to be effective.
*Non value added cost or expense needed to be look at.
*Dicounts should have to be avail.
Reduce funding level of working cap[ital by:
1- Shortening Credit period offered to customers or perhaps consider offering early settelment discount
2-Obtain longer credit period from payables by building strong and long relationships
3-Shortening inventory holding period using inventory management techniques
you can also improve your cash flow by controlling over/ unneccesary expenses & tight control of Inventory.
