Staying on top of your business’s cashflow can seem like a tough task. But when you’re in control of your cashflow, you’re also in control of the financial fitness of your business. Monitoring your cash position on a regular basis puts you in the driving seat. And that’s the best place to be when you’re aiming for success, growth and a rosy future for the business.
We’ve highlighted five ways to improve your cashflow management. Top tips that will put you in complete control of the financial future of your small business.
Getting your cash flow under control
In simple terms, cashflow is the balance of payments coming into your business, compared to the expenses that are going out of the business.
Cashflow is an ongoing process and your goal is always to be in a positive cashflow position. In other words, as the owner or finance director, your aim is to have more cash coming in than you have going out. This means you always have enough cash to run your operations. Or to pay your staff. Or to continue investing in your continued growth.
To get in full control of your cash-flow management:
Agree good payment terms – payment terms set out when your customer will pay you, and when you will pay your suppliers. Negotiating terms so your customers pay up before it’s time to pay your supplier bills will give you some much-needed cashflow breathing space. If customers pay within 14 days and you pay suppliers within 30 days, that’s a fortnight of boosted cashflow before those bills have to be paid.
Improve your credit score – you can protect your company’s financial history by making sure you pay your suppliers on time. Prompt payment means you won’t be reported to the credit reference agencies for going beyond the payment terms. With a good credit score, you can negotiate better payment terms and the business will be seen as a stronger financial prospect. Agreeing longer supplier credit terms essentially opens up interest-free credit, giving you more cash to continue growing your business.
Send out invoices on time – invoice your customers quickly and collect this cash as efficiently as possible. Make sure your customers know that your 30, 60 or 90-day payment terms begin from the date the invoice is raised. Also check if your terms and conditions allow you to charge late-payment fees when customers don’t pay your invoices on time. If your customer is another business, you do have a statutory right to charge late payment interest.
Take out credit insurance – think about taking out insurance to protect you against non-payment by your customers. Whether it’s due to insolvency or an ongoing dispute, if customers don’t pay up that’s bad news for your cashflow. Having credit insurance reduces the risk of your business being put into debt, and the insurance payout helps to keep the cashflow wheels turning. You can choose a policy for your whole business or just for certain accounts.
Be informed when taking on a new customer – before agreeing to a new contract with a customer, it’s important to understand their business credit rating. A poor credit rating can mean that your new customer is not in a good position to pay you. It’s even worth checking the credit score of your suppliers, so you can understand how resilient they are and how stable your supply chain is likely to be. Do your homework and check out the credit rating of any new stakeholders before you enter into a contact. If you can prevent late payment or bad debt, this is good news for your future cash flow.
Explore your cashflow finance options
When the cashflow road becomes bumpy, that lack of ready cash can start to impact on your business plans. Invoice finance is a helpful way to access additional finance fast, so you can get your cashflow back on track. By using your outstanding invoices as security for an invoice finance lender, you get a quick cash boost to see you through any lean periods.
Get in touch for a chat about the benefits of invoice finance.
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