How to collect

These activities create patterns of cash inflows and cash outflows. These cash flows are both unsynchronized and uncertain. They are unsynchronized because, for example, the payment of cash for raw materials does not happen at the same time as the receipt of cash from selling the product. They are uncertain because future sales and costs cannot be precisely predicted.

Small businesses in particular must pay attention to the timing of inflows and outflows. For example, Earthly Elements, a maker of dried floral gifts and accessories, was formed in March 1993. The owners of the firm rejoiced when they received a $10,000 order from a national home shopping service in November 1993. The order represented 20 percent of total orders for the year and was expected to give a big boost to the young company. Unfortunately, it cost Earthly Elements 25 percent more than expected to fill the order. Then, its customer was slow to pay. By the end of February 1994, the payment was 30 days late, and the company was running out of cash. By the time the payment was received in April, the firm had already closed its doors in March, a victim of the cash cycle.

The Productive Entrepreneur

The Productive Entrepreneur

Entrepreneurs and business owners. Discover 45 Insightful Tips To Motivate, Encourage And Energize You To Become A Successful Entrepreneur. These Tips Will Move You Forward Towards Your Goals As An Entrepreneur. Use It As A Handbook Whenever You Need To Get Motivated.

Get My Free Ebook

Post a comment