Managing Cash Flow - tips for keeping on top!

From the start:

Before doing business with someone for the first time always credit check them, the same goes for existing customers wishing to increase their credit limit.  If in doubt insist on payment up front; if their credit rating is poor they will understand and not be surprised by this.

If you are doing bespoke work or working on a project or product that cannot be sold to anyone other than that specific customer then ask for a deposit to cover basic costs.  Make a point of discussing your Terms and Conditions.  Ensure they are clearly stated and send them out with all confirmations and invoices.

We will always need to make a commercial judgement about whether to work with a customer and this is in an environment where circumstances will not necessarily be ideal, but the more you do upfront the better placed you will be if things don’t go according to plan.  

General management:

Keep a running cash flow forecast, so you can identify bottlenecks early on and plan what you are going to do before they become major issues.  Produce regular management accounts at least monthly, and if required, weekly.  If you don’t have anything like this and don’t know where to start please speak to us.  We are able to offer a number of different cost-effective solutions to help you run your business.

Encourage staff to suggest efficiencies – and reward them for their input.  Look at using IT to save you money such as online meetings were possible, rather than travel to them.  Look into invoice finance to make the cash locked-up in your invoices available from Day 1.  The money freed up in this way can be used for any business purpose.  While it is not for everyone and comes at a cost it can provide funds for a growing business.

Avoid tying up cash by holding too much stock, however tempting the discounts.  Plan ahead and be aware of customers’ buying patterns.  This is about getting the balance right and remembering the importance of cash flow to the business.

Managing customers:

If you can, offer your customers an early payment discount.  For those customers with strong cash flow, taking the discounts is an effective use of their resources.  Don’t give your customers a reason to delay payment; check invoices before you send them out. Issue invoices promptly, addressed to a named individual if possible.

Don’t be afraid to send a reminder as the payment date draws near and start chasing payment as soon as it is overdue.  No one should object to a polite reminder as it is simply good business practice.

Managing suppliers:

Always try to negotiate better payment terms with your suppliers, they may say no, but if you don’t ask you don’t get.  If you are struggling with cash flow and you have to make some late payments then keep the supplier informed. The relationship will be damaged if you simply don’t pay and ignore phone calls and or letters. Far better to pick up the phone and explain the payment will be X days late this month.

For further information/advice on this topic please contact Ward Williams (http://www.wardwilliams.co.uk)