Felicia’s Footwear is a small company that makes children’s custom footwear. The company make footwear for all ages and specialize in footwear for medical problems and for unusually large sizes (e.g., the 6’9’’young man who wears a size 18 shoe and is still growing, etc.). Although the business has become noted for its deft handling of “problem” footwear, the company still handles a full line of shoes for all children.
Felicia uses an old shoebox method of bookkeeping along with her Quicken Books program to keep track of her cash flow.
In a recent attempt to obtain a bank loan, the bank manager asked Felicia why she had such a large outstanding accounts receivables balance. Felicia was surprised at the question as she was not aware of its size. She often gave terms to some of her “problem” customers because her shoes were expensive and the parents needed time to pay on the bill. Felicia knew that sales had doubled this year. She had thought this was a good thing but had not realized that the accounts receivables had also doubled.
Explain how managing cash flow is important to a small business and its effects on the small business if not managed properly. In addition, give Felicia some tips on how to handle cash flow data collection and accounts receivables going forward.