Tips to Manage the Cashflow in Your Business

By Sue Wilcock, Editor

Published in Norfolk Director & Suffolk Director business magazines

Even if your business has a strong and healthy bank balance, there should always be strong and robust mechanisms for keeping your cash flow in check.

It’s totally understandable that with everything else you have going on in the business day-to-day, managing finances isn’t one of the simplest tasks to dip into when you just have a couple of minutes to spare. As well as allowing you more freedom and flexibility, cashflow is integral to any business and can seriously affect the decisions you make.

However, especially for sole traders and small businesses, if you don’t have your cashflow in check, you can end up heading into troubled waters.

What isn’t realised by many, is how a delay in settling invoices can affect your credit rating and your ability to borrow money or open an account with a supplier. Exactly the same for you personally, a credit score is a measure of how your businesses is perceived by lenders or other businesses. A high score indicates a low financial risk, whereas a low score suggests that you are less financially stable, or more likely to default on payments. You can protect your company’s financial history by ensuring that all outgoings are paid on time. The better your credit score, the better the payment terms you can negotiate, which can be a huge benefit for cashflow.

There’s an awful lot of responsibility on the shoulders of those in charge of managing finances to do it right. A single miscalculation can make a huge difference to being able to take on new orders, pay suppliers or even staff wages.

So, what can be done to get things right?

Here are a few tips to manage the cashflow more effectively.

Keep Up To-Date Cashflow Records

Daily, you should know how much cash is in the business. If you know what money you need to collect each week or month to maintain a positive cashflow, you will be better armed to plan. You don’t need to buy expensive software for this, a spreadsheet will do just as well and if you use the internet, you can find plenty of sample cashflow sheets that give you a place to start. It’s also prudent to create a quarterly cashflow forecast, so you can keep on top of future activity. This will allow you to be more proactive about increasing sales, winning work or finding new suppliers to plug any financial gaps.

Practice Speedy Invoicing and Strict Credit Control

Invoice quickly and follow up promptly on any outstanding invoices that have gone overdue. According to Gov.UK, unless you agree a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service. If you are on top of this, you will ensure you are only giving credit to customers who can pay you back and that when they do pay you, they do so at the agreed time. Also, check if your terms and conditions state your legal right to make late payment interest charges on your invoices.

Be Prepared and Informed

Check out the credit rating of a new supplier or customer BEFORE agreeing to a new contract. There may be a cost to do this and there are plenty of organisations out there that provide this service. So, it may be best to ask your accountant if they can recommend someone. Being aware of their ability to pay enables you to confront what could be a possible issue before it becomes a concern. Remember, you can set your own payment terms, such as discounts for early payment and payment upfront, if you think there might be a problem.

Try to Negotiate Payment Terms

Set appropriate payment terms for your clients and suppliers BEFORE you get to work. If you want a bit more ‘wriggle room’, try to negotiate longer payment terms with your suppliers than the terms on which your customers pay you. If you are selling a high value product or service which may take weeks or months to complete, by negotiating options upfront for phased payments, you can ensure that you have regular cash coming in to pay wages and suppliers.

Establish a Good Reputation

Treat other businesses as you would like to be treated and ensure that all your outgoings and invoices are paid on time. As well as giving you a good standing in your marketplace, it will improve your credit rating. It’s likely that at some point in the future your business will need to take the next step in its growth, and you’ll need to get additional funding to do this. The better your credit score, the better the payment terms you can negotiate with lenders.

Protect Your Business

Think about reducing the risk of putting your company into debt and get credit insurance to protect against non-payment by your customers due to unforeseen circumstances like insolvency.

Seek Help Before Things Go Too Far

If you have a negative cashflow and the forecast shows a temporary problem, then don’t be tempted to bury your head in the sand. Stay in contact with your bank and make sure you get the support you need straightaway. Also, if you communicate with your own creditors openly, honestly, and quickly, they may give you better payment terms.

Concentrate on Your Own Skills

Your aim should be to delegate cashflow management to others who have more expertise and knowledge in financial administration. Therefore, research and consider the choices that are open to you, and as soon as you can hire a resource to take the burden off your shoulders. This will put you in a position where you can better use your own skills and you will be free to focus on growing the business. 

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