Call us: 03330 113622

Blog home
Categories
Popular Posts
Recent Posts
Archive

• 30 Sep

  Which Companies Have The Best Cash Flow?

  

  I occasionally answer questions on Quora and I have just replied to one: "Which companies have the best cash flow?". I will share my answer below.

  Which Companies Have The Best Cash Flow?

  The question will be relevant to people that are considering starting a business and are looking for opportunities that will yield a good positive cash flow.

  This is how I would answer the question:

  There are a number of different components that drive good cash flow, some combination of them is likely to result in a company with a good cash flow. These are the components to look for:

  • Trading on cash terms - if you sell on cash terms i.e. people pay cash, you get paid for sales immediately. That cash is immediately added to your available working capital making you very liquid. Others that sell on credit terms will have to wait for customers to pay e.g. 30 days, before receiving the proceeds from a sale. 
    
    
  • Receiving customer payments quickly - alternatively, you may be selling to customers that pay very quickly. For example, we deal with banks and finance companies that all tend to pay our invoices within a few days. The last time I checked it averaged about 11 days. This faster debt turn means that cash is available earlier than if we had to wait say 30 days.
    
    
  • Having extended credit terms from suppliers. If you have long credit terms from suppliers, it gives you a chance to make sales and get paid for those sales before you have to pay your suppliers for raw materials (if you are manufacturing) or other expenses.
    
    
  • Selling on high margins - the larger the profit margin on your sales, the less of your sale price is required to pay your suppliers. If you were selling a product with almost no costs e.g. you published your own book on Amazon (which you can do for free), and you promoted it yourself, any income received will go straight to working capital.
    
    
  • Prepayment services against invoices - if you use a prepayment service against your unpaid credit invoices, you can receive up to 100% (less charges) of the invoice value immediately. This accelerates your cash flow, even if you are granting customers long credit periods.

  So if you are looking to start a business, a combination of the above factors is likely to result in a business with a good cash flow.

  By Glenn Blackman