How to Improve the Problems of Corporate Cash Management

Abstract: With the increasing competition in the market, the survival and development of many companies are facing extremely serious challenges, and the survival and development of the company is closely related to the maintenance of the company's working capital management. This paper takes Guanfu Household Company in the daily-use ceramics industry as an example, analyzes the current situation of the company's working capital management, discusses the current shortage of working capital, low efficiency of capital operation, a large proportion of credit funds, unreasonable structure of the working capital and other problems, and gives solutions and suggestions to cope with the existing problems. \x0d\ Keywords: working capital management Problems Fujian Guanfu Modern Household Co. \x0d\Introduction \x0d\ In today's situation of economic globalization, in the face of increasingly fierce competition, the survival of the company is faced with a number of problems, the most important of which is the working capital, which is the main bottleneck affecting the future development of the company. At present, China's joint-stock companies are generally short of working capital and other problems, which greatly limits the company's production and business development. Profit is the ultimate goal of the enterprise in the operation of the pursuit, of course, the company's profit is mainly through the liquidity of the turnover to realize, therefore, working capital is the core of the company's management, but also the company depends on the survival and development of the foundation. [1] \x0d\ Fujian Guanfu Modern Household Co., Ltd. was established in June 22, 1999, mainly engaged in daily and arts and crafts, processing, manufacturing household plastic products, glass products, stainless steel products, production, sales of ceramic products raw and auxiliary materials, and engaged in the import and export of goods and technology, foreign trade, as well as business information consulting, business management consulting, and industrial equipment Technical research in the field, technical research and development in the field of computers, etc. \x0d\ I. Problems in Guanfu's working capital management \x0d\ In 2012, the world's economy continued to be in turmoil, recovery was very slow, and the European debt crisis was not fundamentally resolved. Various domestic raw materials, energy prices and labor costs rose sharply. By the national real estate macro-control, the real economy downturn and other factors continue to influence, more so that the residents of the consumer willingness to rebound slowly, many export ceramics enterprise business retracted to the domestic market, more intensified competition in the industry [2]. The company in 2012, accelerate the adjustment of sales channels and terminals, reduce the number of directly-managed stores, will focus on the development of comprehensive business supermarkets within the special channel stores. The adjustment of the company's sales channels led to the closure of some stores and other losses made in 2012, sales expenses remained high; in addition, the increase in bank borrowing and rising interest rates led to a substantial increase in the company's financial expenses, which brought great difficulties to the company's operations. \x0d\ (a) Shortage of operating funds \x0d\ The company must rely on sufficient funds for rapid development and growth, however, the company is often plagued by a lack of operating funds due to the external economic situation and fierce competition in the market. The current national tightening of monetary policy, inflationary pressure aggravated by fierce market competition, low profits from corporate sales, advances serious and other factors so that companies face a shortage of operating funds [3]. In addition, from the company's own operation, due to the continuous expansion of the production scale, a large number of fixed assets investment is required, if the investment management is not good, it will also cause a shortage of working capital. Shortage of working capital will be detrimental to the long-term development of the company. \x0d\ (ii) Low operating efficiency of working capital \x0d\ The company's low efficiency of working capital is characterized by the phenomenon of slow working capital turnover and a large gap between the use of commercial credit. On the one hand, many companies have poor control of accounts receivable, with larger book receivables, longer recovery cycles, and a higher probability of the occurrence of bad and dead accounts. The company only focuses on the expansion of market share and increase in sales performance, while neglecting the management of accounts receivable, reducing the actual cash flow and lowering the efficiency of the use of working capital. On the other hand, the company does not grasp the market demand for products accurately, the product structure is unreasonable, the product lags behind, or the production organization is poorly coordinated, so that the raw materials are backlogged in a certain production process, so that the book value of the product is too high, and the realizable capacity is poor, so that the liquidity turnover rate is slow. Third, the low utilization rate of commercial credit, accounts payable is a kind of interest-free loan, the rational use of accounts payable will make the enterprise development speed up. For large companies the use of commercial credit is highly efficient, while for many small and medium-sized companies accounts payable are restricted and the utilization rate of commercial credit is very low, and small and medium-sized companies are an important part of supporting economic development. \x0d\ (c) A larger proportion of credit funds \x0d\ For most companies, the main source of corporate finance is short-term bank borrowing, the advantage of short-term borrowing is that banks are well-funded and strong enough to provide more short-term funds for the company. Bank borrowing has a high degree of flexibility and can be repaid as it is borrowed. The disadvantage is that the cost of capital is higher and there are more restrictions. Companies often have misunderstandings in the management of credit funds, the lack of working capital management planning, in the process of continuous expansion of the company's operations, there is a mismatch between the raising and use of funds, on the one hand, a large number of bank borrowing, on the other hand, there is no reasonable arrangement for the use of working capital time and use of the demand for the amount of credit funds at a certain point in time to be idle. This will reduce the efficiency of the use of credit funds, increase the cost of capital for the company, and add a certain amount of financial risk to the company. \x0d\ (4) Operating capital structure is unreasonable \x0d\ The company blindly expanding the scale of investment in the company's fixed assets in the absence of operating capital shortage, so that the proportion of long-term liabilities rose, the proportion of operating capital occupied by the company declined, will inevitably affect the normal production and operation activities of the enterprise, the lack of operating capital may affect the decline in the company's profitability, if the company has long existed in the phenomenon of irrationality in the structure of the funds, is likely to will cause the company's capital chain to break, increasing financial risks. \x0d\ II Solutions to the above problems \x0d\ (a) Improve the financial market and broaden the channels of corporate financing \x0d\ In the country's general financial environment, the state has strongly supported loans for small and medium-sized companies to solve the situation of the lack of funds for small and medium-sized companies. For companies, multi-channel financing should be practiced in the financing of operating funds. The company's financing channels in addition to long-term financing, there are short-term bank borrowing, short-term financing, commercial credit, bill discounting, group borrowing, bank acceptance and other forms but no matter which financing methods have their advantages and disadvantages, the key is that the financial staff must be in the analysis, comparison based on the choice of financing portfolio, in as much as possible on the basis of the use of current liabilities, pay attention to the company's solvency, to ensure the company's s creditworthiness, and bring greater benefits to the company. \x0d\ (ii) Reasonable determination of currency holdings, improve the level of utilization of funds \x0d\ Key to determine a reasonable amount of cash holdings, the preparation of annual and monthly cash receipts and disbursements schedules. The annual income and expenditure plan is mainly based on the payment terms of each sales contract to determine the amount of cash inflow; based on each inventory purchase plan, the amount of labor expenditures, as well as the projected period of payment to determine the amount of cash outlay to measure the cash surplus / shortfall, if the surplus to be prepared by the surplus funds expenditure plan, mainly by the Group for investment in stocks, bonds, other companies funds borrowing or for the expansion of reproduction. If there is a shortfall in funds, to be supplemented by bank loans, group borrowing, bank acceptance. The monthly income and expenditure plan is prepared according to the specific monthly fund supply and demand. This can reasonably determine the basic cash reserves, safety reserves and growth reserves, and improve the utilization of funds. \x0d\ (C) Sound inventory control and management \x0d\ First of all, accurately forecast inventory demand, mainly based on sales volume to determine inventory holdings. Sales department to accurately formulate sales monthly plan; production scheduling according to the need for scheduling, the preparation of a monthly plan for the list of materials required for the completion of the product; Purchasing Department to prepare a monthly procurement plan, the three links to coordinate with the manager in order to achieve the actual inventory situation "in mind", to determine the reasonable order quantity and timing of orders to provide a basis for the order [4]. Secondly, suppliers and enterprises effective communication, supply can be scheduled according to the demand time to ensure timely delivery.　(D) to strengthen the overall control and management of accounts receivable \x0d\ First, the sales department should clear the arrears of work as an assessment index of the sales manager's responsibility. Secondly, the Sales Department to do a good job of settlement, even if it is temporarily unable to recover the arrears, but also to do the settlement procedures are complete, to prevent the occurrence of litigation once there is no legal basis. The arrears that have been recognized, should be signed in a timely manner to prevent more than the statute of limitations. Third, we should strictly control the credit period of the contract, in the signing of the contract will be written in the credit terms of the contract, with the legal form of constraints on the other party, for some malicious delinquency, if necessary, to stop the supply, in order to ensure the security of funds. Fourthly, we should establish a full-time delinquency clearance organization, hire a full-time lawyer, carefully study and utilize the relevant national policies, and play a guiding role in the overall delinquency clearance work of the Group. \x0d\ (E) Optimize the company's capital structure \x0d\ The company should, based on its own operating conditions, take into account the cost of funds, profitability and the pressure of cash for future repayment, etc., and reasonably arrange the proportion of current and long-term liabilities to meet the company's capital needs, and at the same time maintain a reasonable ratio of current assets to current liabilities, to achieve a balance between the saving of funds and maintaining solvency The company should scientifically and reasonably The company should scientifically and reasonably plan the ratio of capital demand and usage for working capital and long-term investment, use long-term investment strictly according to the capital plan, and strictly prohibit the phenomenon of occupying working capital due to the unreasonable use of long-term investment funds. At the same time to speed up the operating capital turnover cycle, as far as possible to improve the utilization rate of operating capital, so as not to increase because of long-term investment and reduce operating capital, so that the decline in corporate profitability, the phenomenon of increased financial risk. \x0d\ (F) Strengthening Purchasing and Supply Management Reasonable Utilization of Commercial Credit Funds \x0d\ When the company's payment cycle is longer than the collection cycle, then the more business there is, the more interest-free loans there will be from suppliers, and the company will be able to make better use of its working capital. Therefore, the purchasing department should pay attention to the speed of this sales return when making payments, not only not to damage the credibility of the company, but also to use other people's money to make money; in addition to a stable supplier, to establish long-term cooperation. With statistics, this short-term financing in many companies accounted for about 40% of current liabilities, it is an important source of short-term financing for the company. \x0d\ III Suggestions for Further Improvement of the Company's Working Capital Management \x0d\ (A) Problems and Improvements in Cash Management \x0d\ Company personnel do not have sufficient knowledge of cash flow management and tend to ignore the important role of the cash flow statement and do not make full use of the statement's information to serve the company's business decisions. The study of cash flow management only stays at the level of company operation and has not been raised to a strategic level. The content of cash flow management is only broadly related to tactical management such as cash budget and daily flow control, which is not effectively combined with the development strategy of the enterprise. The means of cash flow management also focuses on ex post facto analysis, but lacks ex post facto control, especially ex ante prediction and arrangement. Its assessment and performance evaluation system is still "profit-oriented", for the quality of performance is far from enough attention to the issue of cash flow orientation is still very weak, so the practice of cash flow management there is a serious lag and passive characteristics. Cash flow management is only paid attention to when wages cannot be paid, there is no money to buy raw materials and pay taxes. To systematically improve the operation quality of the enterprise and the ability of sustainable development of the enterprise, it still needs the unremitting efforts of the theoretical world and the business community. It is necessary to pay real attention to cash flow management from the concept, fully recognize the important role of cash flow management, and take measures to build a cash flow management control system. \x0d\ Specific recommendations for improvement are as follows: first of all, we should pay attention to cash flow budget management. With cash inflow and outflow control as the core of the enterprise financial management, leaving the cash flow budget management, it also loses the basis of management and management center of gravity. All enterprises should forecast the future cash situation, the specific preparation should be based on the production, sales, investment, asset management and other departments of the business income and expenditure budget, not only the preparation of the annual cash flow budget, but also should pay more attention to the preparation of the monthly budget of the cash flow, in order to make a timely financing program, fund scheduling and use of the program. Secondly, correctly grasp the early warning method of cash flow risk. This is very necessary for the timely detection of the first signs of risk, to achieve ex ante control of risk. For different causes of cash flow risk, enterprises should take different early warning methods. Again, improve the cash flow turnover speed. The cycle of cash flow to take up a certain amount of time, and the length of the turnover time will directly affect the operating efficiency of cash and the security of investment recovery, and further affect the operating efficiency of enterprises. If the cash flow cycle for reasonable planning, shorten the cash flow cycle, improve the turnover speed of cash flow, you can accordingly reduce the amount of working capital accounted for by the enterprise, to avoid unnecessary waste of cash, improve the efficiency of the use of cash. [5] \x0d\ (ii) Problems and Improvements in Accounts Receivable Management \x0d\ One is the problem that exists before credit sales, mainly in order to expand the sales volume, open the market and the use of credit sales, as well as discounts in the process of dealing with customers, such as commercial discounts, cash discounts and so on. Blind credit sales can easily lead to the occurrence of bad debts, bad debts, and give customers discounts for the development of enterprises is very unfavorable, in serious cases, enterprises are likely to be dragged down by accounts receivable. Secondly, the unsoundness of the enterprise's internal control leads to poor collection of accounts receivable, after the occurrence of accounts receivable, the enterprise did not liquidate in a timely manner, collection, but also did not regularly reconcile with the other party, verification, for the uncollectible accounts receivable, the deduction of the bad debt reserve is insufficient. Coupled with the complexity of the business, the quality of accounting personnel is not high, and the problem of accounts receivable in the internal audit is not easy to be detected, which can easily lead to the loss of enterprise assets. From the internal performance appraisal aspect, the current marketing staff's salary is linked to their own sales, seems to focus only on sales, sales staff will also be in order to improve their own salary efforts to sell on credit, and then more and more accounts receivable, coupled with insufficient efforts to collect, bad debts are also more and more, which will result in the situation of the enterprise has high sales but low profits. There is no auxiliary management of accounts receivable or only according to the age of the accounts receivable. If there is a poor return, it can not meet the management needs, which leads to the existence of a large number of overdue accounts, which is not conducive to the production and operation of the enterprise. And these situations make the business cycle of the enterprise prolonged, affecting the capital cycle of the enterprise, resulting in a shortage of cash. Third, the basic contract management problems. Enterprises for overdue accounts receivable should strengthen the collection efforts, and the most fundamental is the enterprise in the contract with the customer to have a written agreement, in accordance with the requirements of the contract reasonable protection of their rights and interests. Enterprises often in order to expand sales, especially with frequent customers to reach a verbal agreement, and not reflected in the contract, which often leads to the occurrence of overdue accounts receivable. [6] \x0d\ Specific suggestions for improvement are as follows: first of all, we should strengthen the approval management of customer credit requirements. In the process of production and operation of enterprises, with the continuous expansion of the business direction and business scope, new customers will also continue to increase. When a new customer makes a credit request for credit sales, it is usually necessary to fulfill certain approval procedures. According to the information obtained from the investigation of the customer, the sales department manager reviews and approves the decision whether to give credit to the customer, as well as the size of the credit amount. For one-time credit sales of large amounts, even if it is an old customer, should be re-examined and approved procedures, in order to prevent unforeseen circumstances. Secondly, the information feedback management of accounts receivable should be strengthened. In addition to making clear and detailed records on the accounting books, it is also necessary to carry out follow-up investigations on the situation of recovered accounts, mainly for those customers with large credit sales or poor credit quality, and it is necessary to understand the changes in the solvency of these customers in a timely manner. At the same time, statistical analysis of accounts receivable, mainly on a regular basis, the accounts receivable ageing analysis, the so-called ageing analysis, is the balance of accounts receivable of various ages has occurred in the proportion of the total balance of accounts receivable. Once again, it is necessary to strengthen the responsible management of accounts receivable. The person directly responsible for its responsibility management is the salesperson in the sales department of the enterprise, so the responsibility for the collection of accounts receivable can be specifically implemented to the salesperson. In the recovery of accounts receivable, it should be insisted that whoever sells is responsible for the collection of accounts receivable, and the salaries and bonuses of the sales personnel should be calculated according to the amount of return. For more than the specified credit period of accounts receivable, on the one hand, we should urge the sales staff to collect in a timely manner, on the other hand, we should formulate appropriate rewards and penalties to ensure. The enterprise financial department should also be around the accounts receivable responsibility management system, do a good job of coordination, supervision, to ensure that the enterprise accounts receivable daily management work into practice. \x0d\ In short, working capital management working capital management should be a control rather than a restriction of the sales effort, it is in an important position in the enterprise sales and purchasing business, and will have a significant impact on the realization of the enterprise's profit objectives. Its purpose is to promote the sales department to reduce sales risk and improve profit level. Therefore, company leaders should pay attention to working capital management, strengthen working capital management, improve the efficiency of the use of funds, under the premise of the full rate of financial risk, and strive to minimize the input to obtain the maximum output.