Schedule of one company's daily cash management routine.
Don't tell Art Allen that cash flow is no big deal. In 1986 Allen founded Allen Systems, a manufacturer of mainframe-computer software, with $2,000 from personal savings. Since then the company has grown to $12.5 million in sales, thanks in large part to Allen's almost obsessive focus on daily cash management.
"With $3 million worth of receivables -- about half of that being paid by international customers into our overseas bank accounts -- we could not afford to tie up our cash while we waited to act on weekly or monthly bank statements," he explains. "It was absolutely essential for us to figure out how to collect funds quickly and get them profitably invested back in the United States."
Here is Allen's cash-management strategy:
By 2 p.m. each day, an accounting staffer at Allen's Naples, Fla., headquarters receives faxes updating the status of each of the company's international bank accounts (in Tokyo, Sydney, Paris, Frankfurt, London, and Madrid). The faxes list total deposits, the U.S. exchange rate, and a current value in U.S. dollars for two accounts at each location: a checking account, which holds funds that are clearing or being paid that day, and a money-market account, into which each day's excess checking funds are swept.
By 3 p.m. Allen receives a consolidated cash report from his staffer that highlights the current status of each of the company's overseas bank accounts, its U.S. accounts, and its line of credit. He reviews that information, along with an accounts-payable report that projects Allen Systems' monthly expenses at each of the international locations.
By 3:30 p.m. (sometimes even sooner) Allen makes his cash-management decisions for the day. "I leave only as much cash in each international bank account as I can foresee using to cover our expenses during the course of the month. Then I instruct our international bankers to transfer all excess funds back to our U.S. account," where they will be held in short-term investments until needed, the better to boost profit margins.
Why bother to do all that every day? "As a growing company, we're very vulnerable to cash-flow crises," Allen emphasizes. When the company set up its first international operation, in England, "we waited for customers to mail their payments to the United States, and it was a nightmare," he recalls. "Payments took several weeks longer than they needed to; checks got lost in the mail. Finally, we decided to set up bank accounts overseas."
Unfortunately, notes Allen, it's not always simple for a U.S. company to get those payments back to the States. "To get money back here from a bank in Brazil or Spain might take two weeks or more. So you've just got to get the process started early -- there's no point in waiting even a week."
The cost of this type of intensive cash management? "It's not at all punitive," says Allen. "About $1 per day for each bank's fax, and an hour of my staff person's time. In terms of my own time, I need to spend only about 10 minutes each day -- and the results are well worth it." -- Jill Andresky Fraser