Cash management for retailers

Your business’ cash flow is crucial. It ensures that your business can continue to operate. In turn, your business must generate enough revenue to maintain sufficient cash flow.

Unfortunately, for many reasons - sometimes due to management errors, but also due to circumstances beyond your control - you can experience a cash shortage, despite a good revenue stream. You run the risk of falling short of the cash needed to operate your business, notably, to cover your costs (employees, suppliers, rent, taxes, etc.).

WHAT ARE THE KEY CASH INDICATORS?

There are several key cash indicators for your accounting:

  • The Working Capital Requirement (WCR), corresponds to the amount of money your business needs at all times to cover cash flow imbalances. The higher it is, the greater your cash requirement will be.
  • Your receivables and the amounts pending payment.
  • Your net cash flow, which is the difference between your incoming and outgoing cash over a given month.

HOW CAN YOU OPTIMISE YOUR CASH?

Several general measures are recommended to optimise your cash:

LIQUIDATE YOUR SURPLUS INVENTORY

Excess inventory will sometimes absorb part of your cash and is a common reason for a cash shortfall. It is recommended that you take inventory on a regular basis to liquidate any surplus stock.

You can sell your surplus the traditional way, or reduce your prices and margin somewhat to bring in more liquidity and free up more space.

Several sales strategies are used to facilitate lowering your inventory. Some marketing approaches recommend creating “impulse buying zones” by putting your smallest items in key places around the shop (tills, entrance, exit, etc.) to encourage people to buy.

You can also bundle products in your inventory with other products or offer them above a certain purchase amount.

Monitor your stock rotation: if a product is kept for a significant period beyond its delivery deadline, it may be more interesting from a commercial standpoint to get rid of the inventory and only order the product for special sales.

REDUCE YOUR FIXED COSTS

While it’s difficult to reduce lease costs, you can, however, reduce certain fixed costs, notably by periodically encouraging competition among your suppliers so that they align their prices. This is typically done for insurance policies, and, sometimes other suppliers (gas, electricity, Internet, etc.).

However, be careful, not to let go of a good supplier to save a small amount and jeopardise good service and a good relationship. In addition to price reductions, you can also negotiate longer payment terms and staggered payments.

In the event of difficulties, remember to review all of the goods and services that cost you more than they contribute and, if applicable, plan to get rid of some.

INCREASE YOUR CAPITAL

Capital increases aren’t just used to finance investments to grow the company. They can sometimes be used to increase cash and improve the financial situation.

Capital can be raised in-house by the shareholders or the self-employed business person (natural person) or by bringing in external investors to the company. However, be aware of the long-term consequences such as a decrease in the weight and decision-making power of the partners.

AVOID LATE PAYMENTS

Encourage your customers to pay in cash whenever possible. The faster your customers pay (“accounts receivable”), the better you cash position will be to pay your own invoices (“trade payables”). If you credit your customers too often or give them too much time to pay, you will delay receipt of your receivables, but not the payment deadlines for your invoices, which can make things difficult for you.

To avoid any misunderstandings, be sure to indicate the due date (for example, on receipt of invoice or at 30 days, etc.) for your invoices.

Monitor customer collections and update your payments list on a regular basis by sorting your invoices by the exact overdue payment time and the date the payment is due.

A TIP FOR GOOD CASH MANAGEMENT

Good cash management is a long-term habit. We recommend that you set up cash forecasting to maintain an overview on potential future expenses and receipts to anticipate cash requirements.

Why treat payment delays as a priority?

Payment deadlines are a priority to manage to ensure your cash flow.

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