How can we help? Call us at 360-455-1569 or email

How your business borrower can manage cash flow better…

Toolbox for Finance offers this article by SAP: Managing Cash Flow in Times of Crisis.

It is a good article to read if you have business borrower’s challenged by cash flow…and I am guessing that most of your business borrowers are. In tough times, improving the management of the company cash cycle is a priority.

When a business lender understands ‘best practices’ in managing company cash flow you can be a better resource for ideas and, through your conversation with the borrower, better assess if they are doing everything they can to protect their cash flow.

Here are a few of SAP’s tips for improving the credit-to-cash cycle with my thoughts added:

  • Add an up-front credit evaluation.
    • Linda’s thoughts: Pre-recession a company may have checked credit before they offered terms to a new customer. Now for major customers, checking credit before each major sale may be necessary.
  • Do not rely on a single before-sale evaluation.
    • Linda’s thoughts: Besides an external credit check periodically, monitor all major accounts for signs of trouble. Put a ‘Google alert’ with the customer name to stay on top of major news. Keep in touch.
  • Monitor outstanding accounts receivable closely to drive timely collections and ensure low DSO (Days Sales Outstanding).
    • Linda’s thoughts: Consider a phone call the day after the bill is due. Instead of asking for their payment, check in on the quality of your service or what else you might do for them. Then ask about the bill. Chances are they may bring it up before you do.
  • Conduct careful receivable aging analysis.
    • Linda’s thoughts: This will help in two ways. It will provide the early warning sign that collections efforts may need to be improved. And it will alert management that alternate cash flow sources may need to be found before the problem gets worse.
  • Systematically pursue follow-up collections on overdue accounts.
    • Linda’s thoughts: Especially for smaller businesses, this can be haphazard. As the lender, consider finding some good resources for information on this (the SBA for example) and offer it to all of your business customers.

I would add:

  • Depending on how severe the cashflow issue is, consider running a 13 week cashflow forecast and updating it weekly
  • Review the concentration risk of relying on one major customer. Take action to diversify the client base to reduce the chance that one bad debt could take the business down.

What are your suggestions for managing the cash flow the company already has coming to them?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.