Suggestions for Improvement of Cash Flow in Commercial Testing Laboratories!

Suggestions for Improvement of Cash Flow in Commercial Testing Laboratories!
Systematic payment collection plan
Systematic payment collection plan

Management of cash flow in laboratories is a critical area which requires involvement of senior management as well as all employees irrespective of their position and roles.

Commercial testing laboratories play an important role in upkeep of national product quality standards and in global trade through upkeep of mandated quality standards and improvement of product features. However, in order to sustain their activities they rely heavily on sustained cash flows.

Why is cash flow important?

Cash inputs play a significant role in any organization and more so in commercial testing laboratories for the following reasons:

  • Hiring and retention of experts and skilled manpower
  • Support of marketing and promotional activities
  • Purchase of sophisticated instruments, reagents, chemicals and consumables
  • Maintenance expenses on sophisticated analytical facilities
  • Expenses on maintenance of recommended environmental controls in test areas
  • Up-gradation of existing testing facilities
  • Training and skill of up-gradation of technical staff
  • Expenses for annual maintenance and service contracts and purchase of spare parts
  • Fees for regular audits and inspections by regulatory bodies and prospective clients

Sources of Cash Flow

Next it is logical to look into sources of cash flow. Sources depend largely on the scope of activities but generally fall into the following:

  • Testing charges receivable from customers
  • Consultancy services covering setting up of green field testing laboratories, conducting business potential surveys for clients, etc
  • Third-party R&D activities such as method development and validation, product development, stability and shelf life studies, etc
  • Organizing training and development programs for both local as well as overseas trainees

Recovery of Pending Payments

Almost every laboratory has a staggering list of recoverables due to lack of formulated policies on cash collection. It is true that there can be loss of business clients if rigid options on cash collection are adopted but a balanced approach can help sustain uninterrupted cash flow without sacrificing on potential clients. The goal can be achieved through the following suggestions:

Advance Payments

This is an ideal option which does away with the need to put efforts on payment collection after forwarding of analysis reports. However, before this approach can be implemented internal systems need to be streamlined so that reports are communicated to customers within promised time frames without sacrificing quality of services

Dedicated Payment Collection Manpower

This is an alternate option under which a dedicated team is employed whose key function is to maintain constant contact with customers for follow-up and collection of out-standings. The role of this team needs to be defined clearly and there should be no mix-up with marketing efforts. Marketing teams are expected to concentrate on developing new business contacts and to establish good business relations with existing clients and often find little time for sustained efforts towards payment collection.

Report Generation Linked to Payment Receipt

This is another viable option to achieve the desired objectives. The samples on receipt are booked with or without advance payment. Keeping the samples without testing over extended periods is not recommended as they can lose their original characteristics or even degrade under storage conditions. Analysis should be performed in routine and online access to results of certain parameters can be made available to customers but printing of final reports should be authorized by the software only after confirmation on payment receipt is communicated to the system. This streamlined process will help eliminate need for payment follow-up and recovery after analysis report is communicated to the customer.

Any or all the three suggested approaches will help in reducing or eliminating the ever increasing out-standings. Adoption of one or all the approaches will depend on individual circumstances and quality of business relations that a laboratory enjoys with its customers.

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