Untie your company's cash

Businesses absorb lots of cash when they expand, as funds get tied up in working capital or used by business-as-usual processes.

Taking a closer look at your balance sheet and day-to-day operations will help you find additional cash and increase your company’s value. If you want to free up more capital for your business, focus on these five steps:

Analyze your overhead.

Separate overhead costs—rent, equipment, utilities, salaries, and marketing—from your production expenses. Can you reduce recurring expenses to improve your cash flow?

Ask employees, especially those involved in your day-to-day operations, to identify costs that can be cut or eliminated.  Pay special attention to overhead that can be replaced with innovative alternatives at a low cost.

• Automate financial functions – Invest in digital systems for payroll, purchasing, and other accounting tasks. Electronic systems help tighten your control over business expenses by providing you with greater visibility into your spending patterns, secure payments that minimize fraud, and faster, more streamlined methods for processing payables.
  
• Go green – Shift to digital forms of communication. You’ll be able to save on expenses like paper, toner, ink cartridges, copying, and equipment while creating additional storage and filing space, which might allow you to downsize your facility or use that space for profit-generating activities.
• Take advantage of new technologies – Cloud-sharing and data storage will reduce your technology costs while improving accessibility and collaboration between employees at all locations.
• Think before you buy – If equipment becomes outdated quickly in your industry, leasing options could save you money on upgrades, repairs, and monthly carrying costs.

Tighten up on your receivables.

Capital tied up in receivables serves your customers’ business interests instead of your own. Reevaluate your policies on customer payments to strengthen your company’s cash base.

• Shorten payment terms – Offer your customers the shortest terms possible without putting your business at a competitive disadvantage. Giving your customers 60 days to pay is the equivalent of extending them a 2-month loan. For large jobs and orders, negotiate down payments and partial-progress installments.
• Make payments simple – Provide your customers with easy and convenient payment options like online, credit/debit card, or ACH transactions to access cash quickly.
• Offer early payment incentives – Offering discounts on early or electronic payments will help you gain access to capital fast and improve your cash flow.
• Automate collections – Digital collections can help save you time on payroll, minimize manual input errors, and shrink your receivables turnover rate.

In a survey conducted by the Association for Financial Professionals (AFP) and sponsored by Truist, businesses cited speed of settlement as the number-one benefit of electronic payments, whether from customers or to vendors.^{Disclosure 1}

Stretch your payables.

Paying vendors on time is key to maintaining credit, avoiding late fees, and taking advantage of discounts. It’s important to pay on time, but not early—unless a discount or other incentive is offered—so that you’re able to hold on to funds longer. These practices will help boost your company’s cash position:

• Negotiate with suppliers – Ask for fair pricing, better payment terms, and invoice discounting.
• Bid on contracts – You might be able to find the same materials at a more favorable price with better payment options. Your current vendor may lower prices to be competitive.
• Purchase in bulk – Take advantage of discounts that can save you money and bring down inventory carrying costs.
• Pay vendors electronically – Use electronic payment methods—online, credit/debit card, or ACH—for just-in-time transactions to hold on to cash longer. Paying electronically will also reduce processing time, increase accuracy, and streamline reporting.
• Consider credit cards  – If you need flexibility, use a credit card to take advantage of extended payment terms.

Streamline your payroll.

Payroll is typically a major expense, especially if hiring the best employees means you’ll have to offer competitive salaries and benefits. Streamline labor costs and improve your bottom line with these strategies:

• Upgrade to an online payroll system – Save time and money by using electronic payment methods and enabling online HR access for employees.
• Outsource – Save on training costs by hiring freelancers or contractors who already have the required skills for specific projects. Talk to your Truist relationship manager for suggestions on how to outsource routine financial tasks.
• Offer incentives – Incentivize employees to contribute to your overall objectives by creating bonuses and offering compensation to those that meet their goals. Providing other incentives like extra paid leave, paid parking, or fitness club memberships can also help you build a committed staff.

Tighten up on inventory.

Focus on the four determining factors of your Days Inventory Outstanding (DIO)—whether finished products, components, or raw materials—to improve your cash flow and build up savings.

• Less expensive capital – Reduce your capital costs by renegotiating financing used to purchase inventory. Lower rates and/or longer payment terms can help save interest expense and bring down the value percentage of your inventory.
• Organize storage space – Make your storage space more efficient by implementing a warehouse layout with narrow aisle equipment, which will allow you to store more product in less space.  Install technology that’s able to quickly identify/locate materials or products so you can move goods in and out of your warehouse faster.
• Manage inventory – Reduce service costs—like insurance and inventory tax—by implementing a pull inventory system, also called just-in-time (JIT). Order and receive supplies or goods when you need them by using accurate demand forecasts, which can help lower your inventory, waste, and service costs.
• Reduce inventory waste – Managing inventory turnover can help minimize your losses from obsolete, damaged, or stolen goods. The longer your DIO, the more cash you have tied up.