Continuing our cash velocity discussion, let talk about Increasing Throughput. Throughput (as defined in Goldratt's Theory of Constraints Throughput Accounting) is sales revenue minus truly variable costs. Therefore we can increase your throughput by either 1)...
Continuing our cash velocity discussion started on March 16, 2007Yesterday we discussed how offering a discount can reduce cash to cash cycle time and today we will discuss an alternative.Another approach, which leads to similar results is receivables factoring....
Last time (on Friday) we talked about offering a discount to our customers if they paid on delivery. What kind of discount could you offer to get cash back into your system faster so that you could make more money? Before you answer that question, also consider that...
Now let’s look at the impact on what we discussed yesterday had on our throughput. Let’s say we immediately visit a customer whose complete order was shipped and had just been received by that customer. We make, and they accept, our 20% Discount Mafia Offer and we...
Reducing Float for the Cash Constrained Company Now let’s consider a case where there is a cash constraint. When cash is your constraint, going out of business is usually not far behind. Most small businesses go out of business because they have run into cash...
The Role of Payment Terms in Cash Velocity To reduce the time it takes to collect payment from our customers we offer a 1%/10 option, but none of our customers use this option and many of them pay late which is why we have an average of 42 days. So we remain at 55...
Reduce Material On-Hand to Reduce Cash-to-Cash Cycle Time To reduce the number of days we have material on hand, be can implement Goldratt's Theory of Constraints Demand Pull[1] solution. We know from Demand Pull that historically we compensated for not having a good...
Cash velocity is a component of the wider topic of cash flow. Both cash flow and cash velocity are like good health. When you have it, you don’t really notice. But for many companies the time between when they have to pay their vendor and when they get paid is large...
Should I factor (sell) my receivables? I could use the cash, but the cost seems too high. This question is hard to answer without more information, so let’s look at an example: Let’s say it costs you $40 to make a product you typically sell for $100. If you could get...
