10 Top Tips To Better Manage Your Cashflow

Cash is king in any business – being on top of what money is coming in and what money is going out and when is essential.

As they say, “every little helps”, so here are 10 tips to help you manage your cash more effectively:

1.            Plan the cash flow year – If the business experiences peaks and troughs in demand, prepare for these and put in place measures to ensure the cash flow reflects the changes.

2.            Don’t bulk buy – hold as little stock as possible and turn it over quickly. Agree with suppliers a right of return of unsold stock.  Look at getting ‘stock on consignment’ (you do not pay before it is sold).  Can suppliers deliver to customers on the company’s behalf?  Careful planning should eliminate this potential drain on cash.

3.            Keep costs down – Review all cost items (including products and energy) and relate this to efficiency. Turning off one PC overnight can save over £50 a year.

4.            Run a credit check on customers and potential customers – look at the credit histories with a view to eliminating late or non-payment.  Try to instil in staff the thought that ‘a sale is only valid when the cash is in the bank’.  Before accepting an order ensure the customer/potential customer accepts the payment terms – in writing.  It is also essential to enforce payment terms and if a customer doesn’t pay, put them on a stop.

5.            Invoice promptly – issue them as soon as is practical. Soon after they are issued contact the customer by phone or email ensuring they have the invoice in their system and that they have no problems with the supply – record this. Get them used to paying on time.  Remember “a sale is only valid…”

6.            Ensure that systems advise you of late customer payments – keep an eye on debtors’ days (trade debtors’ ÷ sales for the previous 12 months) × 365).  An increase could indicate a credit control issue.

7.            Take precautions – consider taking out insurance to cover all trading with a large or doubtful customers or even against individual invoices.

8.            Negotiate or re-negotiate credit terms with suppliers – Ask for early settlement discounts (if cash is available) and try to split annual costs into monthly payments.  This will probably be easier than paying a large bill at the end of the year. Consider what would happen to the business if a supplier failed?  Too much reliance on any one supplier could leave the company extremely vulnerable.  Use credit checks and find alternate source(s).

9.            Review wages and salaries – In times where cash is tight, these (usually) monthly payments are strain on cashflow.

10.          Consider invoice finance – These facilities can bring in a value of up to 90 per cent issued invoices – but it has a cost. It can assist as the cashflow income then grows in line with sales, and bridges the gap between issuing an invoice and receiving payment.

Source: Barry Hill of www.ukba.co.uk

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