Written by Fred Parrish

Cash management should be an obvious priority when a company is not performing well (slowing or declining revenue, unusual increases in expenses, etc.).  However, when a company is in a fast growth mode it is not quite so obvious that it is in a dangerous position as well.  Since most companies will need to self-finance growth opportunities, great care should be given to the decisions regarding the amount and timing of the use of cash (investment).  It is absolutely critical that you do not run out of cash.  There are a number of warning signs that would indicate you are heading for trouble.  This is by no means a comprehensive list, but it should serve as a general guide and possibly help orient your thinking to identify areas that may be more specific to your company’s operation. 

1. Cash discounts are being missed.
2. Vendors are being stretched beyond normal payment terms.
3. Late fees are being incurred on lease payments or trade accounts.
4. The age of your accounts receivables is increasing and/or it is getting more difficult to collect accounts.
5. Debt is increasing without a corresponding increase in collectable revenue.
6. Deposits of payroll or other taxes are being delayed beyond filing deadlines.

If you find these conditions occurring more and more often, you should take preventive action immediately.