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ACCOUNTING

Who's in Charge?

Benefits of appointing a cash-flow specialist to determine why money is or isn't coming into the company.
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Why do so many small companies get walloped regularly by cash-flow crises? John Conroy thinks the answer is obvious: no one is in charge of the all-important issue of controlling cash flow.

Conroy, a West Haven, Conn., cash-flow expert who spent most of his career as the treasurer or controller of businesses with up to $10 million in sales, offers a solution that is as effective as it is unusual: "Appoint a cash-flow specialist with the authority to cross department lines as he or she follows the trail of cash coming into -- or failing to come into -- the company." It's a strategy that Conroy has implemented in many of his corporate posts.

Why not simply assign that responsibility to an accounting clerk? "You can't control cash flow if your activities are limited to your company's back offices," Conroy explains. "In most small companies, sales, operations, shipping, and accounting departments are involved, but they seldom report to the same manager." Because responsibilities are divided among different people, it's easy for problems to develop without anyone's noticing.

To Conroy, the key to an effective system is the ability to collect accounts receivable quickly. "Most overdue receivables are unpaid because of problems in a company's organization," he says. "Your cash-flow system is vulnerable at points where information gets transferred -- between salespeople, operations departments, accounting clerks -- because errors disrupt your ability to get paid promptly."

In Conroy's experience, 50% or more of aging receivables can be collected after an interdisciplinary cash-flow specialist has been appointed. Such a position carries three responsibilities: to watch the numbers by tracking sales from order through invoice and identifying in-house errors; to talk to customers (the specialist should be quick to recognize and correct disputes over invoices, order problems, and so on); and to bring cash in quickly.

The test of a good cash-flow specialist: whether receivables come in more quickly than payables are sent out.

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