Business Intel: 4 Areas of Your Balance Sheet That Could Be Hidden Sources of Capital– May 12, 2020 by Rudy Barry

In this installment of our “Business Intel” series — helping you monitor, understand and maximize your organization’s liquidity and cash management processes — we provide more detail on specific strategies to make your working capital work for you.

When organizations need cash, they often first look to external sources rather than their own balance sheet. Generally, balance sheets have hidden sources of capital you can uncover by dissecting accounts related to working capital. Practicing financial and cash flow discipline to gain liquidity can result in numerous benefits, such as:

  • Fund growth,
  • Streamlined processes,
  • Reduced debt levels,
  • Lower costs,
  • Enhanced service levels,
  • Maximized shareholder returns, and
  • Outperformance over competitors.

>> Read our previous blog on “6 Ways to Improve Your Working Capital and Optimize Cash Flow”

Let’s look more closely at four strategic areas that can help you improve working capital and enhance cash flow: accounts receivables, accounts payable, inventory and cash management.

1. Accounts Receivable

After establishing customer relationships, organizations tend to get caught in an unforgiving cycle of carrying overdue accounts receivable, extending credit and offering discounts — or even ignoring payment terms when trying to gain new customers. In an attempt to maintain customer satisfaction, organizations are ultimately preventing capital growth for opportunities, shareholder payouts and new service/product offerings.

Closely managing your receivables will allow you to view up-to-date and accurate financial information. Having readily available financial information will help your organization’s decision makers easily view and interpret key performance indicators (KPIs), including areas such as:

  • Days sales outstanding,
  • Percentage of customers who pay late,
  • Unreconciled items,
  • Monthly percentage of write-offs and
  • Collection rates on bad receivables.

Taking an analytical approach one step further, more granular metrics will help depict an even clearer image of your organization’s financial fingerprint, such as number of invoices past due, how many invoices have unapproved discounts and how often the sales team is overriding standard items.

One method to improve these data points is accurately reflecting your customer master data in your billing and collection systems, including the products the customer is allowed to purchase, dollar limits, payment terms, and whether or not they receive volume discounts. A caveat to managing customer data:  all systems must speak to one another to maintain consistent data amongst departments. For example, if one department inputs payment terms at 60 days rather than the correct 30 days, you will not be paid on time.

A second method to support an automated system centers around invoice and billing. An automated system will generate invoices in a timely fashion, decrease manual input errors, and ensure timely and relevant reports to an end user. Additionally, creating a customer portal would allow customers to download invoices into their own accounting system and reduce manual hours allotting time to cash applications, disputes and collections.

2. Accounts Payable

Similar to accounts receivable, a strategic partnership is required among the accounts payable and purchasing and/or procurement departments. In an effort to free up cash flow, many organizations try to extend payables as long as possible. The downside to pushing payments includes lowering supplier goodwill, which may result in slower delivery times, less willingness to correct defects, slower response times and less favorable payment terms. Strategies to overcome the idea of “pushing payables” include creating a paperless processing environment, introducing supplier portals, bolstering purchasing and approval processes, and accelerating invoice processing.

These methods will cultivate electronic communication with vendors and provide the ability to track orders, monitor delivery schedules and reconcile payments received. Defining the level of management authority required for purchases will reinforce the purchasing and approval processes, while standardizing the invoice processing will ensure a consistent approach in paying invoices appropriately and timely.

3. Inventory

Maintaining adequate inventory level is certainly a balancing act. If you stock too much inventory, you may need to use external resources to finance it. If you hold onto inventory too long, it may become obsolete. If you carry too little inventory, you may lose sales, which would in turn decrease your cash flow. To carry the “right” amount of inventory, you must begin by creating a process to facilitate tracking and follow demand patterns.

Consider centralizing your organization’s inventory to reduce warehousing costs and optimize shipment to end customers. Further, strengthen your internal controls related to inventory so you can more easily ensure inventory is safeguarded, replenished and adequately maintained.

As we have mentioned for both accounts receivable and accounts payable, creating an automated process helps improve accuracy of tracking and managing inventory levels. If possible, use the ability to negotiate full drop shipments — when suppliers deliver products directly to the customer rather than first to a centralized warehouse for preparation, and then to the customer.

Finally, after identifying slow moving/almost obsolete inventory, apply measures to accelerate the sale of products through returning the products, scrapping the product, or perhaps creating a special deal or bundle package.

4. Cash Management

In a manner to echo the above information, cash management becomes a “catch all” to specific strategies and methods. Upon implementing the ideas, such as delivering invoices electronically and implementing a vendor portal, you in turn shorten the cash conversion cycle. To further understand your cash implications and requirements, we suggest looking outside your current assets and liabilities. Also focus on capital expenditures and long-term debt repayments.

>> Download our PowerBI Liquidity Dashboard to help get control of your finances during these unprecedented times and continuously monitor the health of your organization.

Contact Rudy Barry at, Mary Washburn at or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.