Question

Can you explain a couple of these in more detail?

Companies can speed up cash collections and slowing down cash payments by these other ways :

1. Speed down your inventory shifting

2. Expediting account receivable process

3. Reducing expenses and improving revenues

4. Make agreement of days of payables in your favor with the creditors.

Answer 1

Accounts receivable refers to the payment for credit sales due. This represents Locked up cash of the business. Expediting the accounts receivable process will ensure that the cash which is locked up in the accounts receivables is released quickly. Reducing the accounts receivable collection process will be in favor of the business. This will bring in cash faster into the business process and reduce the investment in working capital resulting in higher cash.

Reducing expenses will reduce the cash outflow of the business . This will increase the cash flow and result in highest Savings and higher income for the business. Improving revenues will increase the cash inflow into the business and this will increase the net income of the business as well.

The business can make an agreement with the creditors in its own favour. Creditors represents tables of the business and hence it is a cash outflow. Increasing the number of days payable will be in favour of the business since the cash outflow will be delayed. This will result in higher savings for the business because the cash can be used for business purposes till the time it is paid.