So cash is king, once again. Not that it ever was dethroned; it’s just that, for a while, it shared its perch with other corporate goals, like growth. Not anymore. Credit is tight and sales are down, so companies have to wring all they can from the funds they have on hand. This prompts the question, Just how do you do that?

A recent report by REL/Hackett Group, “Cash Culture Study,” offers some strategies that companies can use to foster a “cash culture.”

Assemble a cash management steering committee. Include members from finance and treasury, purchasing, sales, and all other departments that have some impact on cash. The goal is to get everyone to think about how their policies and operations will affect the funds coming into and going out of the company. For instance, the sales department, quite understandably, focuses on closing deals. However, if a large customer decides to string out its payment, the company’s cash flow suffers. The sales team needs to know the ramifications. Similarly, business unit heads traditionally have been measured against their performance on the income statement. “A key challenge facing any organization is ensuring that all functions that traditionally have been oriented to driving the P&L recognize the role of cash,” says Mark Tennant, managing director with REL.

Moreover, while you may think that the last thing your company needs is another committee, you’ll want to reconsider. More than 90 percent of respondents whose companies had steering committees indicated that the initiatives they undertook to boost cash flow were effective. That compares to 70 percent of respondents whose companies lacked a steering committee.

Apply a corporate cost of capital. Again, because many business units are evaluated based on their income statement, their execs don’t worry about the impact that growing receivables or capital investments (often funded by corporate) have on cash flow. Implementing a corporate cost of capital on the funds they use quickly changes that mind-set. The rate should be comparable to what an outside investor would expect, Tennant says. For most companies, this means somewhere between 10 and 15 percent.

Overall, the companies in the survey that applied a corporate cost of capital had a lower ratio of working capital needs to sales. Nearly three-fourths of these companies had a working capital-to-sales ratio of less than 15 percent, compared to 46 percent at the other firms.

Include cash management within execs’ compensation plans. While some execs may not keep a close eye on the company’s cash, most are very aware of the balance in their own bank accounts. So, evaluating cash management skills when determining compensation can quickly direct everyone’s attention to it. An example would be compensating salespeople based, at least in part, on cash collected, and not simply orders booked.

To be sure, you don’t want to zero in on cash management to the exclusion of other critical measures. For instance, purchasing could draw out payment terms indefinitely, but if they string suppliers along for too long, the company may find itself losing vendors. Similarly, reducing inventory and freeing the funds tied up in it is a great way to boost cash. However, if this means that customers can’t get the products they want, you haven’t really won.

The goal is to strike a balance between the trade-offs, Tennant says. “At the moment, it’s almost the reverse,” as cash tends to get overlooked in favor of other measurements. ###