How To Increase Business Cash Flow Using Financial Policies

How To Increase Business Cash Flow Using Financial Policies

Increasing business cash flow is vital to every business. Many business owners only think in terms of getting new customers or using advertising to increase cash flow. They are leaving income lying on the table if they aren’t also setting financial policies to control their cash flow.

There are numerous actions a business can take to increase cash flow and using financial policies can play an important role in that effort.

Setting Firm Financial Policies That Increase Cash Flow

Setting financial policies that can speed up cash flow are very effective, especially when your sales team encounters a customer asking for special concessions. A few financial policies to consider are:

Getting Paid a Percentage or The Entire Amount Up-front – Ask for full or partial payment up-front or demand cash-on-delivery. Many businesses automatically offer payment terms or credit terms when customers would be more than willing to pay you up-front.

For service businesses that bill by the hour, setting a policy that all jobs or projects collect a pre-paid retainer, and work stops when the funds run out until the retainer is refreshed, is a very good policy and one that I operate on myself. Any business owner who has been burned more than once would do well to consider implementing this policy.

Break Up Payments For Large Jobs – If you offer terms to a customer you can make the deal based on several parts: an up-front payment to cover the cost of materials or inventory needed for the job, progress payments to cover labor, and a final payment. Make sure you include a portion for your profit in each part. Make it policy that you get a signed contract. Make sure you include a portion for your profit in each part.

Be Very Selective When Offering Payment Terms – A business does not have to offer payment terms to every customer. Be selective and make them qualify to get special terms. Qualifications can include things such as a large minimum order, or consistent orders that meet a smaller minimum each week or month. You can also shorten your terms to 10 days or 14 days instead of 30 days, or offer better prices for faster term payments, such as a 1 – 2% discount for payment in 10 days and full price for 30 day terms. Speed up collection by taking payments by credit card or pre-authorized EFT payments (electronic fund transfers) or direct debits you can make on the day a payment is due.

Write a policy that outlines the procedure for the customer to qualify for terms, and what the approval process is for your company. Be sure there is an approval process so terms are not “approved” for just anyone.

Make It Financially Painful For Late Payers – When you offer terms to a customer, have a contract they have to sign to get the terms, and make sure you include interest charges and late fees in a clause in the contract. Have an attorney draw up a boilerplate contract where you can fill in the blanks and find out what the laws are on usury before writing in the percentage for the interest or the amount for late fees that may invalidate your contract should you have to pursue collections in court. Make it policy that a signed contract is required before work starts.

Putting in firm cash flow management by instituting financial policies can quickly and effectively increase your cash flow, and they give your sales and administrative teams a set of “rules” to follow that keeps income flowing into the business.

Financial Policy Enforcement

Financial Policy Enforcement

Can your company react quickly to sudden changes in market conditions?

A lot has been said about ability of an enterprise to quickly react to ever-changing market conditions. The financial meltdown of 2008-2009 and the ensuing crisis of confidence, resulted in a normally sedate government body, the Securities and Exchange Commission (SEC), reacting to criticism by mandating a number of compliance changes that were sudden, forceful, and therefore quite impactful on one sector of the economy – investment banks, brokers and dealers. This impact was mostly apparent when SEC banned short selling of a number of financial stocks (SECURITIES EXCHANGE ACT OF 1934 RELEASE NO. 34-58592 / September 18, 2008).

Let’s review a common process to respond to such regulation. The ban itself does not list the securities that are included in the mandate, but instead it indicates the Standard Industrial Classification SIC codes. So a selection of the stock symbols and flagging of these symbols in the trading system will be required by the complying firm. Then there is an effective period. But this is not the end of it – only the beginning of a process that can take valuable time and impede productivity. There are orders left in the system that must be cancelled since they are no longer allowed. Customers must be notified, documents filed, new processes learned and so forth. Most of these processes require significant intervention into normal business processes which is time consuming and costly.

An alternative approach would be to utilize policy driven services, enterprise integration with the existing trading system to enact new business rules, communicate with customers about these changes, and monitor and manage the impact of these changes on all involved stakeholders. This futuristic scenario was the basis of the requirement of the policy management application that was done for an investment bank in anticipation of a mandate similar to the one from the SEC.

We had no time to waste and utilized OASIS XACML standards to define and manage policies. An intuitive user interface allowed investment professionals to quickly sort through the myriad of stock exchanges, sectors, and tickers to define the subjects of every rule. The period of effectiveness for every rule is as simple as a click of the calendar – no complex terminology, no convoluted source code, no large technology teams. All rules were created and tested by subject matter experts within a few days of enactment. Time was better spent on validation of accuracy instead of manual coding of something that will be gone in a few months and has no business value. The cost savings have gone way beyond the resources, since everything is clearly documented, verifiable and compliant with government requirements.

A showcase of this creative and effective solution can now be viewed at our web site and is driven by the leading security standards, compliance processes, and integration capabilities.

Clueless Policy

Clueless Policy

It’s never a good thing when another country calls your financial policy clueless. It’s particularly bad if that other country is one of the world’s leading economies, and if it also happens to be right.

“With all due respect, U.S. policy is clueless,” German Finance Minister Wolfgang Schaeuble said recently, referring to the Federal Reserve’s decision to throw $600 billion at our sluggish economy.(1)

The Fed can create as much money as it likes, but the U.S. economy is presently unable to productively put that money to work. By setting near-zero interest rates, the Fed has established that money in this country has no real value. We give it to the banks for nothing, and the banks lend it back to the deficit-ridden U.S. Treasury for almost nothing. The result is a guaranteed profit for the banks, but no incentive to lend cash to creative entrepreneurs or expanding businesses.

The Fed’s $600 billion intervention will make this foolishness more efficient by cutting out the middleman. There will be no need for banks to buy Treasury securities for the next eight months. The Fed plans to buy, for itself, just about as much debt as the Treasury plans to sell in that period. The banks will just sit there uselessly, unable to attract deposits with near-zero rates (or negative rates for many depositors, when fees are considered), and unwilling to risk making loans to businesses in a weak economy while regulators are worried about the banks’ financial strength.

The whole idea behind banking is to have solid, well-capitalized institutions that can attract deposits with a fair rate of interest, and still make a profit by lending depositors’ money at higher, yet reasonable, rates to creditworthy borrowers. It’s a great system. We ought to try it.

Instead, we are going to flood developing nations, which offer better potential investment returns, with cheap dollars. South African finance minister Pravin Gordhan warned that “Developing countries, including South Africa, would bear the brunt of the U.S. decision to open its flood gates without due consideration of the consequences for other nations.”(2) Those consequences will include asset bubbles, inflation and painful currency gyrations.

Brazil’s Central Bank Governor, Henrique Meirelles, told reporters that already “excess liquidity in the U.S. is creating problems in other countries.” Brazil’s currency, the real, has risen 39 percent against the dollar since the start of 2009, interfering with the country’s export market.

The Group of 20 summit in South Korea this week gave President Obama an opportunity to defend U.S. policy, but it’s not an easy policy to defend. The only truly convincing argument he could offer is that in 2012 this country might elect more responsible officials and get itself back on track. Not surprisingly, that was not the message the president wanted to deliver. Instead, he planned to focus on drumming up support for another bad policy move: capping current account surpluses and deficits at 4 percent of gross domestic product.

This proposal, first floated last month by Treasury Secretary Timothy Geithner, has allowed the Chinese to cast themselves as wise and responsible players while blatantly manipulating their currency in order to keep it pegged to the U.S. dollar. Chinese Vice-Foreign Minister Cui Tiankai said in a news briefing, “Of course, we hope to see more balanced current accounts. But we believe it would not be a good approach to single out this issue and focus all attention on it. The artificial setting of a numerical target cannot but remind us of the days of planned economies.”

The proposal to cap account imbalances simply highlights the fact that the United States has failed to bring what it buys from abroad into any sort of reasonable relationship to what it is able to sell overseas. Rather than actually working to accomplish this balance through domestic policy, we want to impose on the rest of the world the financial discipline we lack.

The United States is the lynchpin of the global economy. We buy more stuff than anyone else, we make more stuff than anyone else, and we produce the currency that everyone else uses as either a direct or indirect reference point. If the United States fails to adopt responsible financial policies, the rest of the world will have to sever ties or risk being pulled down as the American economy sinks.

The world is losing confidence in our financial common sense. Just this week, China’s Dagong credit rating agency reduced its rating on U.S. government debt from AA to A+. If Obama cannot address this country’s problems at forums like the G-20 summit, foreigners will have little choice but to do what they can to mitigate the effects that our mismanagement could have on their countries.

The first thing other countries will need to do to insulate themselves from failing U.S. economic policy is to stop lending money to a country that thinks it can whip up prosperity by creating gobs of cash out of thin air. As our bonds mature, we will be unable to refinance them by issuing new paper to foreign buyers.

The Federal Reserve has sworn not to “monetize” the debt by buying bonds the Treasury cannot sell elsewhere, but it will end up having to do exactly that to avoid default. The dollar will plunge. Commodity prices and U.S. inflation will very likely soar. Other countries will begin to demand that we pay for their products using currencies that still have value. We’ll still be able to get Middle Eastern oil and Italian leather shoes, but only when we can scrape together the euros, yuan or Swiss francs that the market will demand as payment.

The eventual result will be a recession far worse than the one we just experienced. And, in this future downturn, the government will not be able to borrow money to provide extended unemployment benefits or other relief programs.

Schaeuble was exactly right when he called American financial policy “clueless.” The fact that the rest of the world is beginning to see this is, in fact, a clue to what is ahead for America. Here’s another clue: It isn’t going to be pretty.

What is Personal Financial Planning

What is Personal Financial Planning?

Personal financial planning is the development and implementation of total, coordinated plans for achieving one’s overall financial objectives. The term private wealth management also is increasingly being applied to this process, particularly when it involves larger investment portfolios and estates.

Most people use a variety of financial instrument to achieve their objectives. Thus, such basic financial tools as common stocks, bonds, mutual funds, insurance, fixed and variable annuities, money market accounts, certificates of deposit,saving accounts, individual retirement accounts, qualified retirement plans and other employee benefits, personal trusts, and real estate may be elements of soundly conceived financial plans.

Also involved in the planning process is the development of personal financial policies to help guide a person’s financial operations. An example of such policies in investments would be deciding what percentage of an investment portfolio is to go into bonds (or other fixed – dollar securities) and what percentage into common stocks ( or other equity-type investment). Another example, involving life insurance, is that a consumer may want to purchase mainly cash value life insurance or decide to buy mostly term life insurance and place the saving dollars elsewhere. Unfortunately, many people do not follow consistent policies in making these decisions.

In financial planning, people consciously or unconsciously make assumptions about the current economic climate and what they think the economy holds for the future. A commonly held view,for example, has been that the u.S. Economy generally will experience real long term growth, accompanied by at least some price inflation, for the indefinite future. On the other hand, others may fear that economic conditions will change at some point they may plan their financial affairs accordingly.

The Global Economic and the Financial Crisis

The Global Economic and the Financial Crisis

The worst economic and the financial disaster of modern era is now almost over and most of the countries are now recovering from it. The situation is utterly different from the one that media shows and this crisis did not emerge suddenly. It is a result of poor financial policies which have been adopted in the last two decades.

The first signs of this economic crisis started to appear in the late 1990s and at the beginning of new millennium. The companies were not able to sense the threat and continued to shift their businesses online and selling items through credit cards. E-commerce did bring positive things but like anything else, brought its drawbacks with it. Sadly, the consequences of this online purchasing system were far reaching than the benefits.

Circulation of money has positive effects on the economic and the financial indicators. Money has to circulate in the market to help grow the economy but in this scenario, it is either held by the banks or the customers and most of the corporate entities collapsed due to ill management of finances. Their return on investment was close to nil in the worsening economic and the financial situation whereas interest rates on loans from banks kept on mounting and that drained their held finances as well. The organizations were threatened to be taken to liquidation and few survived the scare.

The economic and social effects of this crisis were devastating in some countries especially Philippines and they might get even worse. The world does not have the idea of severity of the problem. Millions of Filipino workers have lost their jobs due to this economic and the financial crisis and have been forced to move to their native soil. They were major contributors of foreign exchange to their country in this economic and the financial downturn but now they have joined hands with millions of unemployed people.

It is repeatedly said now that the world might face another economic and financial crisis in the year 2016 which might last for 2 to 3 years. The analysis performed considering the economic and financial position of different countries and the financial situation of different markets causes the analysts to believe that the period of 2016 will be much worse.

The “supposed” war on terror has cost billions of dollars to various countries and it is one of the basic reasons of economic and the regularly discussed “security” crisis. It is not predictable that how long this war will go but the economic and security situation of the world will continue to get worse.

The point to ponder is that the politicians do not understand the economic and the financial situation of the world and they always come up with useless solutions. The things that caused the present economic and job crisis will be the base for the next crisis as well. America and Japan will probably be the first countries to come under attack of the future economic and other related crisis.

You can assess the risk yourself as well and should not believe in all the analysis because they may not always be true. If the economic and other indicators look positive to you then they probably will be. Avoid taking excessive risk while planning any investment in this economic and social downturn. Short term investments will be beneficial for you though they may not give you high returns. The term “high risk high return” is logically true but only if you can bear the loss.

If the world wants to avoid future economic and financial crisis then immediate measures should be taken. The politicians should not play any role in the formulation of economic and financial policies unless they have proper knowledge of the matter.