Cash Management

Managing Disbursements

Cash Disbursements Cash payments are vital to managing and maintaining a successful business.

How a company manages various disbursements and current assets can significantly impact its cash flows. Several problem areas to watch out for include payroll, purchasing, inventories, and insurance.

Payroll

Payroll is a hefty cash outflow that requires special attention. One obvious trend in payroll management is to implement a flexible workforce since the work flow fluctuates. Outsourcing and temporary workers are often part of a flexible workforce. However, a company must retain a full-time workforce for core activities. A firm can also increase payroll float times by simply distributing payroll checks after the point when banks will clear checks.

Purchasing

Flexible purchasing practices can help a company maintain and generate cash flow. For example, a company may consider renting certain items rather than purchasing them. A manager may ask, "Do we really need this item, and how often will we use it?" If practical, a firm can order items out of season when prices are low. Finally, a firm may consider using credit cards to make purchases since this will allow more time for payment.

Inventory

Inventories have several hidden costs that can drain cash flow. These costs include storage, insurance, spoilage, handling, taxes, and financing. A company should eliminate non-moving inventory immediately, and obsolete inventory should be removed. A firm may also find new ways of disposing of inventory. For example, it is better to sell inventory at cost than not at all. The overall objective is to maintain profitable inventory levels.

Insurance

A company should ensure that it does not overinsure the business. A firm should purchase insurance in group packages to obtain the lowest premiums. It should start by covering the largest risks first. It should then structure as high a deductible as is affordable. A company should avoid duplication and excessive insurance and shift certain costs, such as health insurance, to the employee through higher payroll deductions. Insurance should be used to cover risks that are material but occur infrequently.