PwC warns against chasing sales at all costs

Jan 5 2010 by Henryk Zientek, Huddersfield Daily Examiner

KIRKLEES companies preoccupied with chasing sales in the new year could be jeopardising their businesses, it is claimed.

Insolvency experts at PricewaterhouseCoopers warned that many businesses had cut their costs and managed their cash carefully during the recession and were now seeing a steady improvement in orders.

But Graham Vincent, senior manager and cash generation for PwC in West Yorkshire, said firms should resist the temptation to push ahead with a sales drive and take their eye off cash matters.

He said: “Of course, businesses want to increase their share of the market, but more sales can also bring more costs and there is a balancing act to be done to ensure that growth is achieved in a sustainable fashion.

“Business failures typically increase during an upturn and often this is because of a shortage in funding for working capital. In response to this, business managers could look to release cash from their own balance sheet, driving down working capital as a means of funding growth.

“Most companies are adept at managing their customer billing and collecting efficiently, recognising that unpaid debts can have a detrimental effect on the company’s cash position.

“However, during an upturn, cash management processes can become compromised. If managers are pushing for sales, they may not notice the finer detail on a credit check for a new customer, for example. Such actions could put the company at risk at a time when business opportunities are reduced.

“Likewise, maintaining control over the payables process can prove a challenge. As working capital increases due to increased sales and stock holdings, the temptation may be to stretch creditors, but this too carries risk. We have seen numerous examples where such activities have resulted in credit limits being reduced or removed altogether by credit insurers and suppliers.

“The resulting impact on cash can be devastating.”

Said Mr Vincent: “There are quick-wins available to companies that apply good cash management behaviour and working practices during an upturn.

“Such businesses could improve their cash position by 30% or more, by proactively managing cash. Specifically, they can optimise supplier payments and stock holdings whilst issuing accurate bills on time and driving cash collection activities.

“Above all else, they should ensure their customers are willing and able to pay.”