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10 step checklist for better cashflow

As a business owner, whether we have enough money in the bank to pay our staff and suppliers and to invest in the growth of our business can be a big worry for us.  We all know that poor cashflow can kill what seemed on the surface to be a great business and how important it is to manage this well.

So here is a ‘common sense’ checklist of some of things that we could be considering in our business continually to make sure that we are maximising our cashflow.

✓Review your customers’ payment terms

As our businesses evolve, we may change the types of customer we work, with the types of services we provide and the environment in which we work also changes.  It is therefore entirely logical to review your payment terms.  It may be as simple as moving from 30 days to 14 days payment terms.  You may have contracts with particular customers which are longer than 30 days due to the nature of your business – think about how for future contracts or on renewing these contracts you could reduce the payment days for your invoices.

✓Review payment terms with your suppliers

How many days do you normally pay your suppliers within?  If you are paying invoices as they come in or weekly then you are very likely to be paying money out of the business much more quickly than it is coming into you.  Hence, one of the reasons your cashflow is suffering.  Be disciplined and do suppliers payments just once a month, or if the payment terms with some suppliers can be extended, then pay to these dates.  We appreciate there may be exceptions to this and it may not work in all industries but do consider getting your supplier payment terms in line with your sales payment terms as closely as you can.

✓Take payments up front

In industries where you are incurring costs up front e.g. for materials or to pay staff, it is sensible to take part payment for the work to be completed up front.  We see this a lot with digital marketing agencies we work with for example.  This way then the money is there and ready to cover the initial costs and then the final invoices are issued when the project is completed.

This way of operating isn’t limited to particular industries and this is something you may wish to consider for your business.

✓Make it easy for customers to pay you straightaway

You can do this by;

  • Invoicing customers straightaway and don’t wait until the end of the month to do your invoicing
  • Putting your bank details on your invoices so you can be paid by bank transfer (surprising how many businesses don’t) or a link to pay by debit or credit card
  • Discouraging cheques as this leads to delays
  • Taking card payments. If you are a tradesperson for example, take payment from your customer before you leave their house and you won’t then need to chase them.
  • For regular customers, make signing up to direct debit part of your terms and conditions.  You won’t need to chase them and can simply collect the money on the due date.

✓Review your pricing

When was the last time you reviewed your pricing strategy for your business?  If the answer is more than 12 months ago then it’s time to review.  Reviewing your pricing can mean increasing some of the pricing but it doesn’t always mean this.  It can mean packaging your products and services in different ways.  You may wish to start to charge monthly retainers to help your cashflow or you could be introducing prices for new services.

✓Analyse what is tying up your cash and what you can do

Can you see where your cash is being tied up at the moment?  For example, a retailer may have lots of money tied up in stock of particular products and the solution may be to find creative ways to sell this stock as quickly as possible to free up some more cash.

✓Involve your staff

Managing the cashflow isn’t just the responsibility of the business owner or the finance person in the business.  If you have staff, then everyone has a role to play and it’s key to help everyone understand the importance of cashflow to a business.  Even if they aren’t having specific conversations with clients regarding payment, everyone has a role in delivering goods and services to clients – if either are delayed or unsatisfactory, it will impact on cashflow in the business.  The more efficiently and well that customers are delivered to then the quicker the cash should flow.

✓Regular and structured credit control process in place

Time spent on a weekly basis chasing unpaid invoices is an excellent use of time.  If you don’t have the time then use someone from within your staff team or an external bookkeeper or credit controller to do this for you.

Remaining professional, friendly and consistent in your approach is your key to success.

The bookkeeping software can be used to email reminders and statements to your customers and doing this, combined with putting in a polite and professional call to your customer to resolve any problems or issues, will show your customers that you are organised and diligent and committed to collecting payment.  Ask your customers for the date your invoice will be paid and let them know that you will give them a call again next week if it’s not been received.

You will reap the rewards and you will be able to see the amount of days your customers pay within reducing considerably.

✓Cashflow forecasting

This is something you can do yourself or you may want to get the help of your bookkeeper or accountant.  It can be done on a simple spreadsheet or on more sophisticated software whichever suits you best.  The main thing is to make sensible projections so that you can plan certain expenditure to take place at the best times.  You can also anticipate potential cashflow issues and plan to minimise these.

✓Finance options: Overdraft, loans, invoice factoring, leasing

`There are of course a range of financial options for consideration if you need them.  All of these have their own merits for particular situations but all come with a price tag – for example;

  • Overdraft.  This gives you the ability to go overdrawn up to a certain limit.  You can apply to your bank for an overdraft or an extension.
  • Leasing. Rather than make large purchases on equipment or vehicles, could you lease them instead to help your cashflow?
  • Loans. Do you need a short term loan to get you through a particular period of time?
  • Factoring.  With factoring the factoring company will give you a proportion of the invoice total and then collect the outstanding amount of the invoice from your customer. You outsource your invoice completely.
  • Invoice discounting.  This is almost the same as factoring except you retain control over your debt collection and credit control. Invoice discounting is usually suitable for larger companies with an established credit control function.

There are massive benefits of having positive cashflow in your business and it is important to avoid complacency as lack of cash can kill your business.  So we hope that you will have found something in this blog to help the cashflow in your business.

We look forward to hearing your comments on this blog and other ways in which you have seen businesses succeed in bringing more cash into their business.

If we can help in anyway, please contact us at The Bookkeeping Department on Tel: 01462 455455 or join our mailing list.