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Cash flow nightmare

A $30,000 invoice was accidentally paid 2 periods early and affected other operating expenses for the period (i.e. payroll). I know a loan will probably have to be initiated in order to cover the shortfall, but I was wondering if there was a way to measure how soon the $30k can be recouped. I don't know if this would follow a traditional payback model because this was not a capital investment situation. Is there a better, quick, more accurate way to measure how long it will take me to recoup the cash on this expense assuming current sales/cost remain equal. Thanks.

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon
One, some or all of these options may help you get your cash flow back on track:
1. Can you defer payment terms on some other payables, even if by two weeks at a time?
2. Can you freeze/cut back on some discretionary expenses -where impact on the business is minimal?
3. How much can you boost sales in the immediate future? e.g. if you have a 30% gross margin on sales, then an incremental $100k in sales could plug the gap, however you'd have to sell and collect the AR within the next 2 periods.

In any event, if you need to apply for a loan to cover this shortfall, the lender would likely ask these questions, so how good is your forecast?

Anonymous
(Sr. Accountant) |

Thank Len. These are great suggestions and like you stated the lender did ask about ability to boost sales.

Luigi Buffone
Title: Vice President Finance/CFO
Company: Avatar Corporation
(Vice President Finance/CFO, Avatar Corporation) |

In addition to Len's great suggestions, you may want to open a line of credit with your bank. You should prepare or look at your historical cash flow to determine the appropriate line of credit balance. I suspect the bank will ask for some support for the line of credit availability you are requesting. Some banks charge a fee for the unused portion of the line of credit. Try to negotiate this fee away.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

They may have some difficulty, only because when you're in trouble is not the time to ask a Bank for help.... :(

Ron Rubel
Title: Controller
Company: Technical Innovation
(Controller, Technical Innovation) |

A obvious item should be to go to the vendor and ask them to cut a check back to you and give them your FedEx or UPS number to return send it.

You should go them and state as a valued customer who gives X amount of business a year, you should return the over payment to us immediately.

I know we have done this when contacted because we want the repeat business from that customer. If I don't help them with an obvious error, they could get that item or service elsewhere.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I would think a vendor would inquire about a payment made so early (without discount terms). I know I have done this when a payment just didn't make sense (but then again, you need human eyes on transactions, not just an automated system).

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

As Ron and Wayne suggest, this is a credit problem, not so much a cash flow issue. The right course of action, assuming a viable working relationship with the counter party, is to call the CFO and ask for a refund. You also may be able to work with the bank enabling the payment, assuming it was not made be irrevocable wire transfer.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

I'm going to play devil's advocate here:)

If I am the CFO of the company that got the $30k windfall, and I get a call from my customer's CFO asking for a refund, I may think that is highly unusual and so may take take a closer look at that customer's credit level and ability to pay us in future. It depends on my size, their size, how important they are, what their prior payment record has been etc etc.

However, if my AR person came to me and said her AP counterpart called to apologize for paying early and would like a refund, I may be less alarmed and perhaps more likely to agree to something. In any event, I may suggest a partial refund seeing as their current month purchases may be due pretty soon anyway.

So, Anon, how important is this supplier to your business going forward? If your credit profile with them is reviewed, are you confident about the outcome?

Anonymous
(Sr. Accountant) |

Thanks Len. You are right on target. We were actually able to make arrangements where we received part of the payment back. They are a good supplier and we have a pretty good relationship with them.

And thanks to everyone for all of your ideas and input. Each suggestions has actually broaden my thought process on ways to handle a situation like this as well as how to not let a situation like this happen again.

Philip Russell, CPA
Title: Chief Financial Officer
Company: FCB Homes
LinkedIn Profile
(Chief Financial Officer, FCB Homes) |

It would be wise to analyze why this happened so that it does not happen again.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

I would put in a check register review by you before you issue checks. This would help stop this from happening again.

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