Monitoring your cash-flow might not sound like the most interesting aspect of running a business, but trust us when we say it's probably the most important! It can be easy to get caught up in the more exhilarating tasks - especially when you first start up - like closing sales and perfecting your product, but without a finely tuned balance sheet your venture is destined to fail eventually.
Here are our top ten tips for maintaining control of your cash flow.
- Make sure that you're invoicing promptly. It seems obvious, but it's surprising how many businesses leave a lag between completing a job and sending out an invoice. Once a project is complete to a customer's satisfaction, there's nothing wrong with invoicing promptly to speed up your cashflow cycle.
- Which brings us neatly onto point number two – harness technology to make your financial processes easier. These days, there is so much invoicing and accounting software available, that there's no excuse for not using it, every business should be well past the pen, paper and calculator stage! A good accounting package should pay for itself in the time it saves and it only needs to be as complex as your business. From free , Open Source packages like Gnu cash, to low-cost software such as Kashflow, right through to complex systems like Sage, there's something for everyone.
- Get into the habit of entering every penny that is coming in and out of your business into your new accounts package. When you're busy, it's tempting to put paperwork to one side so you can focus on the 'important parts' of running your business, but its proven that cashflow is a crucial element of running a successful company, whatever it's size. If you sideline bills or send a quick email instead of a formal invoice, you run the risk of missing payment deadlines, alienating suppliers and incurring late payment fees.
- Run regular reports, ideally on a monthly basis. It might feel as though we are labouring the point here, but almost all accounting software has the facility to run simple balance reports, so there's no excuse for not knowing what is coming in and going out of your business each month. If you can see how your finances have panned out in the past, you can build monthly cashflow projections for the future. This will help you to predict when the peaks and troughs in your trading occur, and you can make sure you have a contingency plan where you need one.
- Agree clear conditions with your clients and try and keep payment terms as short as you possibly can. To a certain extent, your payment terms are governed by the industry norm – for some sectors clients expect to pay in advance or on delivery, whilst in others 30-day payment terms might be more appropriate. Always look for the quickest route to your cash possible, when laying out your terms, without alienating your customer base, obviously.
- Incentivise your customer to pay promptly. There are many ways to do this – you could offer a prompt payment discount upon receipt of invoice, or, if you normally invoice in blocks of time, you could offer credits or a retainer package where clients get extra hours if they pay in advance. Although you may end up giving away something for nothing in the short-term, in the long-term, this strategy keeps your cashflow moving which will bring its own financial gains.
- On this note, make it easy for your customers to pay you. In this day and age, most companies use automated payments anyway but try and discourage the minority who might prefer to send cheques. Make sure your bank details are printed clearly on any invoices you send out, and if it's possible in your sector, try and get clients to set up direct debits or standing orders.
- Stagger your payments and understand the priority of your suppliers. Adhere to other people's payment terms, but try not to have every payment leaving your bank account in one go. This is where your cash flow reports will be a useful tool because you can plan your payments in line with your predicted income. It's also important to understand which priority your suppliers fall into when it comes to scheduling payments. For example, paying your rent, utilities and staff are likely to be ultimate priorities, as are any business critical services that could be suddenly discontinued if you don't pay. Other business suppliers might be lower priority, although don't sour relationships with late payments if it can be avoided. If you really do need time to pay, even with lower priority supplies, make sure you keep them informed, communicate any issues and negotiate a payment plan so you keep your business reputation in tact.
- Maintain a good relationship with your bank and HMRC. Don't rack up an unauthorised overdraft or accrue late submission fees with HMRC – quite frankly, you may as well take a pile of money outside and set it alight! Bank charges and unnecessary fines really are money for nothing, plus if you have a good relationship with your bank, it can be your quickest route to a quick cash fix as they are more likely to extend your lines of credit temporarily if you've hit a blip.
- Consider funding solutions such as invoice discounting/factoring or a business cash advance. With invoice discounting, you send your invoices to a finance company, who advance a percentage (normally upto 85%) of the balance straight to your account, and then collect the invoiced amount directly from your client when it is due.
At Access Commercial Finance, our lenders can offer factoring and invoice discounting, where all your sales ledger is taken into account, and pay you up to 90% of the value of each of your invoices. We can also find a complete solution, where our lenders can issue invoices on your behalf, manage cash collection and credit insure your receivables. A business cash advance solution for businesses that take regular debit or credit card payments may also be an option. Business cash advance products offer a short term finance boost, which will be recouped through a percentage of your future debit or credit card sales, meaning you are only repaying what you can afford. To find out more and to discuss your finance options, call us today on 03330 069141.