How to keep cash flowing through your business

Use these 10 tips to improve the cash flow of your business.

1. Analyse Cash Flow

Seasonal highs and lows can be problematic for small businesses that frequently don’t have the working capital to bridge the gap from outlay to payment. Cash flow analysis can highlight the cycles in the business, which can be used for timely borrowing, staffing and boosting marketing during lulls.

2. Get an Expert

An accountant should be considered as an investment rather than an expense as he or she can review cash flow projections and run monthly financial reports, amongst other tasks, that provide insights and help the business to plan for problems.

3. Anticipate Problems

By regularly updating the cash flow forecast, keeping an eye on market conditions, monitoring customers and suppliers that may be at risk of insolvency, problems can be identified in advance and dealt with quickly and efficiently.

4. Speed up Collections

Receivables should be monitored weekly and steps should be taken to speed up the collection of receivables by issuing invoices immediately after the delivery of goods or services. Payment terms can also be changed from 60 or 90 days to 30 days.

5. Get the Basics Right

A total of 85% of reasons given for non-payment by business customers are connected to invoice queries or poor administration, according to PwC. Therefore, it’s crucial to invoice the right amount, email it to the right person or send it to the right place once the delivery of goods or services is complete.

6.  Clear Terms and Conditions

An agreement to terms and conditions avoids any misunderstandings and strengthens the business’ ability to collect any outstanding amount later on. Businesses should make it clear that it’s not just selling something, but also agreeing with the buyer what and when they are going to pay.

7. Debt Chasing Procedures

It’s a fact that the longer a debt remains unpaid, the harder it becomes to collect. Follow-up calls should take place after a certain period of time and invoices should be re-issued a limited number of times. If these fail to prompt customer payment, then a more serious course of action must be taken. If this isn’t done consistently, it quickly weakens the position of the company.

8. The Benefits of Factoring

Factoring can provide smaller, higher risk businesses with a quick fix for cash flow or a cash injection for investment. This type of facility involves releasing the value tied up in unpaid customer invoices within 24 hours. In a factoring agreement, the provider manages credit control and collection processes, freeing up time for business owners to focus on the business.

9. Offer Customer Credit, Cautiously

It makes good business sense to run a credit check on new customers as well as to ask for (and check) business references. One way to find out more about your potential new customer is to buy a status report from one of the credit agencies. Checks can also be made free of charge at Companies House.

10. Cut Costs

It’s a simple fact that businesses can improve cash flow by not purchasing items unless they are business critical as well as spreading payment rather than taking a lump sum out of working capital. If a major piece of equipment is needed, it pays to carry out a financial analysis to see whether the business should buy or lease and how each option impacts cash flow.

If you would like to know more about the benefits of factoring for smaller businesses, such as start-ups or phoenix businesses, please call 08000 24 24 51 or email info@businessexpert.co.uk for free and confidential advice from one of our professional advisers.