Cash management and credit control are probably not the most scintillating aspects of running a business, but they are the keys to making sure you stay solvent. Without adequate cash to pay suppliers and staff you won’t be in business long, so take a look at these ten tips to help you stay in control of cash flow and keep you in the black.
1. Make cash flow a priority
Knowing how much money you owe and how much is owed to you is vital for long-term success, but it doesn’t need to take up too much time. You can set up management reports that include these figures on a weekly basis to keep you on track, then you just need to make it a priority to view the reports.
2. Prepare regular cash flow forecasts
Predicting future cash flows will enable you to anticipate borrowing needs, or times when you should cut back on expenditure. Computerised accounting, nonprofit accounting services and bookkeeping packages make it relatively straightforward to prepare cash flow forecasts, or alternatively you could ask your accountant for help.
3. Chase payments consistently
Setting up a system that sends out invoice reminders, statements and gentle ‘nudges’ for payment offers you a better chance of being able to actually collect what is owed. Once persistent late payers know that you’re on the ball with your credit control procedures, you might even find that they start paying on time.
4. Invoice early
Don’t wait until the end of the month before invoicing – you need to have money coming through regularly, so invoice as soon as the work is completed. This, in addition to a system of chasing payments, will reduce the adverse impact of late payers.
5. Good credit control
Ensuring that customers know what is expected of them can help in the battle to control cash flow. Clear terms of payment including timescales and credit limits, plus stating your right to charge interest on unpaid amounts, should encourage faster payments.
6. Control costs
It’s not just money coming into the business that you need to control – regular utility bills and other expenses can be reduced to improve cash flow. Renegotiating contracts with telephone and energy providers is always a good place to start, but don’t forget other expenses such as stationery and postage which can add up to a significant spend by the end of the year.
7. Simplify your payment systems
Making it easy for customers to pay makes sense when you’re trying to control cash flow. This could include links on their invoices to pay with a credit card or PayPal. Electronic payment methods get the money into your account very quickly, as opposed to customers sending a cheque through the post, which has been known to take around ten days in total.
8. Pay your own bills as late as possible
Without becoming a late payer yourself of course. Making sure that payments do arrive on time, but leaving the money in your bank account for as long as possible, will improve your cash situation.
9. Don’t buy too much stock
Buying excess stock involves using up cash unnecessarily, and if the stock lingers on the shelves it can cause an additional strain on your cash flow. Furthermore, its market value may decrease if it remains unsold.
10. Consider offering discounts for quick payment
This can quickly improve cash levels as customers take advantage of a percentage discount in return for fast payment. You could try this for a month or two, and evaluate its success. Staying on top of cash flow need not be onerous – once you get systems up and running, you’ll be able to see your cash position with just a few clicks of the mouse.
Keith Tully from Real Business Rescue is leading corporate insolvency specialist. He knows what it takes to keep struggling businesses afloat and what qualities are required of company directors.