*NEWS*CASH FLOW IS LINK TO CO. FAILURE/2004-09-14

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Date: Sunday June 23, 2013 03:44:56 am
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    Cash Flow is Linked to Company Failure

     

    Inadequate cash flow management,not A lack of business, is at the root of many company failures, according to Atradius Trade Credit Insurance, the U.S. arm of Atradius Group, a credit insurer.

     

    "Too many businesses are effectively providing financing for their customers, thinking that it will create good will and help their business," says Arjan van de Wall, Atradius Trade Credit Insurance vice president. "The lessons learned from the high-profile collapses of WorldCom, Enron, Adelphia and Parmalat are a stark reminder that even the seemingly most stable of companies can suddenly saddle its suppliers with the aftermath of uncollectable debt."

     

    Many companies practice late payment as a means of cash management, van de Wall says. The Credit Research Foundation's survey of domestic accounts receivable performance across all manufacturing industry groups revealed that nearly 18% of accounts receivable were not current in the second quarter of 2004. Allowing customers to pay late can often lead to write offs and impact the bottom line in other ways, including increased need for reserves and borrowing, as well as collection agency and legal fees.

     

    Reducing the time cash is tied up in overdue invoices generally provides substantial savings, often in the millions for typical mid-sized companies. A well-structured receivables management program also frees up executive time to concentrate on achieving business growth targets, and can help maintain healthy customer relations while protecting against the effects of real trouble on the buyer side, Atradius says.

     

    "Cash collections is a sensitive business, and the way it is handled can make or break a business relationship," says Ronald Stiegel, Atradius Collections vice president. "A business can jeopardize a long-standing relationship over a single debt. However, a more aggressive approach is appropriate when indications of trouble are spotted in a relationship. It can be a long, drawn-out process but, when well done, it helps release critical extra working capital."







    * Post was edited: 2004-09-14 10:21:00

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