Sample Essay

The techniques for speeding up cash flows can be spread out into two areas of cash collection and cash payment. The rapid cash collection and delayed cash payments would have a favourable effect on the cash flows of the company. The cash collection area can be further divided into rapid collection of cash from customers and effective management of accounts receivables. The cash collection process can also be enhanced by implementing rapid funds transfer facilities such as sweep accounts, wire transfers and electronic depository transfer cheques. The cash payments in a firm can also be delayed and controlled through various techniques. The first and foremost technique is to pay accounts payable only when they become due and agree on favourable terms with suppliers providing a longer time period for cash payment but delaying cash flows does not mean that cash payments should be extended till after the due date. Zero balance accounts also provide another means of delaying cash flows through keeping zero balances in the various bank accounts the company may have for different divisions or branches in several regions (Khan and Jain 2005).
A company can also speed up its cash flows through accounts receivable factoring. Factoring of accounts receivables entails selling accounts receivable to another entity for immediate cash inflows. It can be seen as collateral for a loan and companies who do not have a very good credit standing can use accounts receivable factoring for immediate cash inflows. The accounts receivable are purchased by another entity which is called a factor. The factor usually purchases these accounts individually after evaluating the standing of each customer and pays the company the invoice amount after deducting a discount of 3 percent to 5 percent. Accounts receivable factoring also referred to as accounts receivable financing also transfers the risks associated with accounts receivable to the factor (Siciliano 2003).

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