Cash Flow Turnaround

February 26th 2020

At the request of a bank we went to see a client of theirs who was giving them concern regarding their cash flow.

We went to clients and checked:

· The Sales ledger

·  Age of debt and values

·  Margins

·  Stock control

· The Purchase ledger

We found that the client had become over reliant on one customer.

Unfortunately, this customer was a very large national who dictated their payment terms (and then exceeded the agreed extended terms) and to whom the goods were sold at very small margins.  Due to the size of the customer, the client felt unable to take action against them.

As a result the client was unable to obtain goods, as they were on stop with their suppliers, which meant that they were not able to fulfil orders from their other customers who provided far greater margins.

It was absolutely clear to us that the business would fold within three months unless they took immediate steps to rectify the situation.

The one action needed was to stop supplying the offending large customer and to obtain settlement of their outstanding invoices.  The client decided to follow our advice.

We were advised by the bank some three-to-four months later that there had been a dramatic turnaround in the fitness of the company.  They were now concentrating on supplying the smaller companies on higher profit margins and as a result did not have the same cash flow worries and the profitability of the company had increased.