One of the most crucial aspects of running a business is maintaining a healthy cash flow. After all, if a business can’t pay its staff and suppliers it can’t operate, regardless of how much it is selling or the size of its profit.
Here are some top tips on managing cash flow to ensure a business can survive:
Write a regular cash flow forecast
Good accounting records will show at a glance what a business is owed and what it owes to others, and this forms the basis of the cash flow forecast. Predictions can be made about how much money will be going in and coming out of the business at any given point. It should take into account known commitments such as payroll and rent, realistic estimates of future purchases and any seasonal variations that may have an influence. An accurate cash flow forecast helps a business to foresee potential problems that may arise in the coming months, enabling appropriate action to be taken to alleviate the impact.
Issue invoices promptly
It should be standard practice to issue invoices as soon as a job or order is complete. The sooner a customer receives the invoice, the sooner they will pay. Set aside time each week to create and send the relevant paperwork. Make sure it complies with the requirements of the client’s account department with the correct purchase order number or reference on it. Ensure it is sent to the right person in the accounts payable team.
Make it easy for the customer to pay
If possible, offer a range of payment options and provide business bank details on the invoice. The more options a customer has, the fewer reasons they have not to pay. Encourage faster payments so that the money is received as soon as possible.
Incentivise early payment
Although the government has made steps in the right direction with the Prompt Payment Code, late payment continues to be a major issue for SMEs. Incentivising early payment can help in this respect. Everyone prefers to pay less, and a small discount can have a positive impact on cash flow.
Have a credit control policy
A credit control system is a process a business has in place to collect money owed by its customers. Ensure payment terms aren’t too lengthy. Chase all payments as soon as they are due and charge interest on late payments. Set aside time to issue reminders or to escalate the problem to a more serious level such as by contacting a debt recovery firm or a specialist solicitor.
Keeping a tight rein on expenditure is essential for SMEs. Seek out the best value on all purchases, consider where savings can be made and operate appropriate stock control. Speak to suppliers about payment terms and pay promptly, so the cash flow forecast remains accurate.
Managing cash flow may seem like a time-consuming process but it is essential to keep on top of it in order to deal with potential problems quickly and efficiently and prevent financial difficulties that could lead to insolvency.
If you find that your cash flow is causing you a problem please contact us for free confidential and impartial advice