Managing Cash Flow

216 Analyzing Non-Value-Added Functions
5. Integrate the above cost savings into product cost structures so that the
company can effectively reduce its product costs and related pricing to
become more competitive.
Accounts Receivable
Six recommendations were developed for accounts receivable:
1. Integrate the sales forecast system into the overall company plan so that
manufacturing can produce to a higher level of real customer orders
assuring a greater degree of quality on-time deliveries. This will allow the
company to better negotiate with their major customers as to long-term
commitments and increased overall sales.
2. Establish long-term contracts with each of the company’s major customers
including the ability to receive payment via electronic data transfer at the
time of shipping merchandise. This will require the company to guarantee
100 percent quality and on-time deliveries. If this can be accomplished,
the company can negotiate such long-term contracts locking in price, production
and delivery schedules, and future payments for cash flow purposes.
This will enable the company to prepare better profit and cash flow
projections.
3. Reduce the number of customer billings through the implementation of
the following recommendations:
• Establish a direct cash payment system for items less than $500, using
credit cards, direct cash payments, and similar vehicles.
• Implement a policy of payment upon shipment or receipt of merchandise
for major customers, considering such factors as ability to make on-time
quality deliveries, negotiated long-term contracts with adequate notice as
to delivery schedules so as to incorporate such deliveries into the production
schedule, the loss of a 1 percent 10 day discount for the customer, and
the ability of the customer to pay on this basis.
• Encourage other customers to accept either the direct cash or pay on
receipt system. With better control over costs and pricing, the company
should be able to lower prices overall to make these systems attractive to
their customers. Three competitors are already implementing such systems
into their operations. It is estimated that the company can reduce the
number of customer bills from the present level of 30,000 annually to less
than 4,000.
4. Establish effective credit policies so that customers are sold only the
amount of merchandise they can pay for. Such credit policies must be flexible
so that each customer’s sales can be maximized without sacrificing
the risk of long or no payment.
5. Once the above recommendations are in place, reduce the number of personnel
assigned to the accounts receivable function from the present level
of 13 personnel to no more than 4 individuals. There is no need for a man-