Managing Cash Flow

68 Managing Cash Flow—Receipts and Disbursements
the desirability of cash sales, most businesses will incur at least some accounts
receivable because of competitive necessities. Controlling those receivables and
ensuring their timely collection is one of the most effective methods of assuring
positive cash flow for the organization. Good record keeping, strong credit and
collection policies, and effective follow-up on overdue accounts will help ensure
that the money flows into the corporate coffers on a timely basis. Once the money
is on the way or has been received, it then becomes necessary to utilize those
funds appropriately, either by temporarily investing them for short-term earnings
or by reinvesting them back into the business to secure long-term benefits for
company stockholders.
The other side of the cash flow coin is cash disbursements, and an effective
cash management system will focus a lot of attention on keeping those disbursements
under control. Paying only bills that are due when they are due is the most
obvious and arguably most effective procedure to follow, but it is often short-circuited
or overlooked. As in the case of cash receipts, understanding systems that
are available to help manage those cash outflows are important as well, which
requires a good working relationship with the company bank and awareness of
the services the bank can offer the company.
ACCOUNTS RECEIVABLE ARE NOT CASH RECEIPTS.
ACCOUNTS PAYABLE ARE NOT
CASH DISBURSEMENTS.