As we approach the end of the year, we find ourselves reflecting on the top issues that dealers have faced this year. Above all, cash flow is the issue we hear aboutmost often.

When working on improving your cash flow, there are three key steps to take to make large and lasting changes. Each of these steps can be further broken down into concrete actions that you can take starting right now:

1 – Accounts Receivable and Bank Line Review

First, in order to generate immediate cash inflow, review your Accounts Receivable (A/R) balances and prioritize collections on your largest balances that are over 30 days and under 120 days. Due to the dropping temperatures, many customers will be needing deliveries soon and know that they will need to clear up any overdue balances before their next delivery. While working on your A/R collections, you will also want to work with your bank to request an increase in your working capital line of credit or other financing. When done properly, this will be your largest opportunity for bringing in more cash quickly. For example, the proprietary forecasting tools that we have used to effectively frame client needs with banks for years have been highly successful, including major cash increases for two dealers in just the last few weeks.

2- Detailed Cash Flow Forecast

Next, in order to plug your cash leaks, you can start with a detailed analysis of your cash flow over the past 6-12 months to identify the top causes of cash outflows. You will also need to create a detailed cash flow forecast for the next 6-12 months to determine which of the past issues are expected to remain going forward, if nothing changes. From there, you will come up with specific corrective actions for your business to prevent the top issues from causing further cash flow drains before they happen. Some financial systems will have reports that can help you produce some of the necessary cash flow information – if not, we typically use our internal models to quickly review the cash flow history and forecast so that we can move right into the corrective action plans.

3 – Establish Proper Policies and Loan Facilities

Finally, in order to maintain your cash flow gains, you will want to apply the proper industry metrics and processes to the knowledge you gained from the actions above to keep your improvements running on autopilot. As an example, you could create a policy that requires customers with repeated large overdue balances to keep a credit card or bank account on file for autopayment. You could put a program in place to track your current ratio (Current Assets/Current Liabilities) every month and take action whenever it dips below your seasonal minimum target. If you have a habit of paying for trucks, vans, tanks, and other fixed assets in cash, you could explore the benefits of establishing an equipment line of credit with your existing bank or another provider. These are just a few of the many options available for you to proactively maintain your cash flow improvements.

Written by Rashaan Baskerville – Angus Finance

If you have questions or would like assistance with your capital availability, set up a confidential call with one of our Angus Finance advisors.