An introduction to the 7 cash flow drivers
As a factoring provider we are very focussed on cash flow and what can effect it.
I am in the middle of writing an ebook on what drives cash flow through our factoring book. Here is an excerpt from my first chapter (beta version), feedback is welcome.
The well-worn cliché “Cash is the life blood of a business” is 100% true.
Every business has cash coming in and going out. There are certain factors that control the cash flow in your business, making the difference between success and failure. A business that is able to identify these factors vis-à-vis its operations can harness these powerful tools to make sure that the business grows, and that cash inflow always exceeds the cash going out. These factors are the ‘cash drivers’ that apply to just about any business, affecting its cash flow.
They Are:
1.Revenue growth or sales growth;
2.gross margins;
3.selling, general and administrative expense (SG&A);
4.accounts receivable;
5.accounts payable;
6.inventory; and
7.capital expenditures
How do these seven cash drivers affect cash flow ? That is what this book is all about. Money, indeed, talks!
It is a fact that all businesses must have a good understanding of its activities in relation to these cash drivers and thereafter, know how to quantify and analyse them – both in the big picture as well as in its various departments. Regardless of which area of the business you are involved in – as the owner of the business, the sales head, administrator – in production, sales, purchasing, service or logistics, an understanding of these cash drivers will help you manage any issues that might crop up and run the business smoothly.
Before exploring the cash drivers in detail, it is necessary to understand the importance of cash flow in a business and also get familiar with some basic concepts that will make it easy to manage and control the seven cash flow drivers that influence your business.
When a business signs on with a factoring company, they are getting more than instant cash. Essentially, they are outsourcing their invoice collection process. This is a good thing because, in so doing, they can then redirect some of their employees who were trying to collect on those invoices to more bottom line activities like generating more sales. And when that business generates more, better sales, they will have more invoices to factor. Yes, building an
expanding creditworthy clientele is the key to a successful business. To learn more, log on to http://www.griorfinancial.com/commercial.htm.