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Cash Flow Learning Trail
Internal Methods of Improving Cash Flow
If a business faces ongoing cash flow problems, then if the business is in other ways successful, it is good management to look for internal methods of solving or reducing the problem, some of the more successful methods are outlined below.
- Stock management - Often cash flow problems arise because too much capital is tied up in stock. When we talk about stock we mean raw materials, work-in-progress and finished goods. Many firms are now implementing practices such as Just-in
Time, and Kan Ban, which are designed to reduce capital tied up in stock and allow it to be used in more effective ways within the business.
- Manpower management - Examining manpower costs can reduce outflows of cash. Is it necessary to have permanent contracts for all workers? Can some work be sub-contracted, or can some work be transferred to temporarily contracted workers? Doing this can save expenditure on pensions, National Insurance, holiday pay etc.
- Budgeting - Why base next years budgets on last year's budgets? Why not start with a clean slate and opt for Zero Budgeting?
These methods can save on business costs and in larger organizations often prove the best long-term solution to cash flow and liquidity management problems.
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