Optimization of the company's cash flow

These cash difficulties due to the lack of synchronization between the revenue and expenditure are accentuated
because of the concentration of the maturities on a very brief, very often at the end of month. If due date used to
set suppliers coincides with the date of payment of wages and VAT, the imbalance of the cash will be further
delivered. Two companies of the same kind and the same volume of activity which must regulate wages and V.A.T.
at month-end will have needs quite different funds as providers deadline lies for one 30, and the other 10
To reduce these fluctuations in need of liquidity, the Treasurer therefore spread payments. In other words:
Chooses as the settlement date of the expenditure which he has control of execution, a distant date that
outputs mandatory funds (salaries, VAT, taxes, etc.),
And distribute regulations suppliers’ receivables on the basis of the movement of cash receipts.
The dates of settlement of suppliers must therefore be laid down taking into account other spending and revenue.
In order to maximize cash, debts must be honored at their maturity date, neither before nor after. The question
arises whether one has interest in paying more sooner to take advantage of a cash discount. It is difficult to give a
general response, practices vary greatly according to the various branches of activities and situations. However we
describe the approach of the analysis to follow, from a concrete example.
If we supposed that a 2% discount is given if the payment is made within 10 days of the billing or the full amount is
due within 30 days. The cost of the waiver of the cash discount is:
(0.02 / 0.98) x (360 / 20) = 36.73%
The discount, must be that the alternative use of funds corresponding to the amount of the debt is paid at a rate
higher than 36% year for the duration of the "onerous" credit (20 days in the example). It remains to select the
instrument of payment
B - THE CHOICE OF THE PAYMENT INSTRUMENT.
The retained payment instrument must possess three qualities for the company when it’s debtor:
First, allow sprawl of payments, i.e. to avoid the pointed output and important liquidity, still expensive;
Allow then the limitation of the formalization of outstanding floating ("float"), also expensive;
Finally, enable to remove waste that are idle cash
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