Is too much cash locked up in the WIP in your business ?

ihunnings
July 10, 2014

Is too much cash locked up in the WIP in your business ?

OK, so you’re running a business. There are so many things to focus on : marketing, sales, making the product or service, getting in your resources to make/deliver it, billing, for some service firms such as lawyers and accountants building up the WIP (Work in Progress) which you can then bill. I am sure you can add to the list.

Yet people say ‘CASH is KING’. It is lack of cash that normally kills a business.

So having lots of orders, having lots of WIP, even having sent out lots of bills, good as they are in themselves and essential for the healthy business, mean nothing if you cannot get the cash in. You want to shorten the time from order to cash in the bank. Many firms will focus on either billable hours or bills delivered. They will set targets and rewards according to those. With respect, the focus is wrong. Those aspects are essential, but it’s the cash you need. If you focus on and reward ‘cash in the bank’ then attention to the other aspects will follow. If you don’t focus on the cash you end up with problems : bad debt, inflated WIP recording, inefficient working practices etc.

What is your process for gathering in cash ? Do you have too much cash locked up in the business ? How do you turn your WIP more swiftly into cash ?

A common problem in law firms is that management are too heavily involved in production – in actually doing the work. That’s natural, when you consider that they trained as technical legal experts and that is where they are comfortable, where value is seen. However, is it the best thing for a business if the managers are also the principal production workers. It is not common in most businesses.

Do you have the time and focus to concentrate on making the processes for gathering cash as smooth, efficient and effective as possible ? Perhaps getting someone in from outside to review, advise and implement might be the most effective way to bring about improvement ?

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ihunnings

Director at Hunnings Consultancy Ltd

I am qualified as a lawyer now working as a consultant assisting businesses improve how they work. My emphasis is on process improvement - in all it's aspects from review to implementation to business coaching. I have worked closely with IT managers on configuration and implementation of Case/Practice Management Systems. I practiced for 23 years, the last 10 in management at all levels up to Board level. I ran a department of 60 staff with a turnover of £4.5m, handling all aspects of the business.