The financial crisis created by COVID-19 has impacted virtually every U.S. business in one way or another. For some, the sudden shift in demand for products and services created a windfall as well as challenges such as keeping up with demand. But for many others, the crisis resulted in an abrupt decline in revenue and cash flow.

While cash flow in your own business is your primary concern, the economic jolt to customers, suppliers and other financial stakeholders may be causing ripple effects outside of your control. Companies need to have a fundamental cash management strategy in place and should revisit and revise their strategy on a regular basis.

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Cash flow is the lifeblood of any business. As such, the process of collecting and managing cash is a critical component of your company’s overall financial health. While it may seem basic, many companies do not have this fundamental cash management strategy in place — or they do not revisit and revise their strategy on a regular basis.

Cash management is made possible, in part, by having a solid understanding of two key principles — your cash conversion cycle and your debt-to-net-worth ratio. Your cash conversion cycle tells you how many days it takes you to convert a dollar of resources into cash from customers.

Immediate Steps to Maximize Your Company’s Cash Flow

Jeff Friesen is president, Arizona region, of Enterprise Bank & Trust.

1. Use Technology to Your Advantage

Automating your payable processes can reduce your accounts payable and payments by up
to 60%, protect you from fraud, improve control of managing invoices and save your finance/accounting team valuable time.

2. Make Extended Payment Terms Work for You

With the financial challenges created by the coronavirus pandemic, extending payment terms is becoming more of the norm. To lengthen payables, don’t pay bills earlier than they are due. Automating payables allows you to make payments on their due date, not before. Conversely, incent your customers to pay you as quickly as possible.

3. Get Rid of Profit Busters

Regardless of how lean you run, every organization has profit busters that negatively impact their bottom line. Here are some of the most common: operational inefficiencies, poor tax strategies, lack of anti-fraud controls, burdening your sales team and high employee turnover.

Other Cash Flow Strategies to Consider

• Explore swaps to manage and reduce expenses, since there is a floor on fixed interest rates. Anyone with set-payment term debt — such as equipment or real estate — can consider this option. A basic example of a swap is when an organization exchanges fixed-rate payment for floating-rate payments.

• Periodically review supplier/vendor relationships to help you avoid complacency in your contracts. Renegotiating terms, rebidding contracts and evaluating expenses help ensure your money is being spent efficiently.

• Improve your inventory management program. The first step is to measure the number of days on average it takes you to turn your inventory into sales. Generally, the lower, the better. Then seek out opportunities to increase efficiency.

One thing that this financial crisis has made clear is that for every business in every industry, cash flow matters. And not just cash flow itself, but cash liquidity, reserves, and the ability to project and maximize cash flow. Having a smart, well-planned cash management strategy in place helps with everything from simply surviving a crisis to thriving by putting capital to work, investing for growth and ensuring that you have explored all options to maximize every dollar.


Jeff Friesen is president, Arizona region, of Enterprise Bank & Trust.