When it comes to growing your business, a positive cash flow and healthy current cash position are key. A good cashflow management strategy will mean that you always have enough money at hand to keep the lights on while you’re out there winning all that new business.
With this in mind, we’ve put together 10 top tips for better managing the flow of cash through your business...
1. Focus on Cashflow
Profit is important but a healthy cashflow is vital. You should put just as much emphasis on maintaining a positive cash flow as you do on winning new business. At its core, good cashflow management is about minimising the gap between when you have to pay suppliers or employees and when customers pay you. It’s about understanding that lag and ensuring that you have sufficient funds available to bridge any gaps.
Just understanding this basic concept and paying it the attention it deserves is the first step toward a stable and sustainable cash flow.
2. Measure and Manage
Keep your eyes on the prize. Use budgets, forecasts and statements to understand your current cashflow situation. Get to grips with how cash flows through your business and identify potential shortfalls on the horizon.
Once you’ve got a handle on where you’re at, you can start planning effectively for the road ahead. Prepare and maintain a cashflow forecast. Update it regularly so that you always have a clear picture of what's coming down the tracks.
3. Agree Your Terms & Stick to Them
Make sure that every client or customer knows when and how you expect to get paid. Set out clearly in every quote or proposal what your payment terms are and what the penalties are for companies who drag their feet.
It’s OK to have different agreements with different clients. You might want cash upfront from new clients and have favourable 60 day credit terms for large, loyal clients. That’s OK. Just make sure that every client understands clearly when you expect payment from them and don’t let them mess you about.
4. Invoice Sooner Rather Than Later
If you take your sweet time in issuing invoices, you can be sure that clients will take even longer to make payments. Get your invoices out as soon as work is completed.
You also need to make sure that invoices are going to the right place. You need to have accurate contact information for the relevant people and keep a record of sending invoices where they were supposed to go.
5. Make Paying Easy
Don’t give your clients headaches by asking them to jump through hoops when making payments. Give them options. Let them pick the method of payment that best suits them but encourage and incentivise clients to use the payment channels that are the quickest and most cost-effective for you.
6. Automate & Improve
Use technology and automation to improve your invoicing and collections processes. You don’t need to be a massive tech giant to take advantage of advances in payments and credit control technology.
Even simple things like pushing invoices straight from your accounts package, switching clients over to electronic billing and using direct debit payments, where possible, can take a lot of the hassle out of getting paid.
7. Invest in the Right Tools
A good cloud-based accounts package will give you the tools you need to effectively manage cash flow. Here are a few packages that we like. They are all good value, scalable and great for growing businesses.
8. Hold Fire
If an invoice is due to a supplier after 30 days, don’t pay it after a week. Stick to your payment terms. Keep the money in your account for as long as possible. Obviously you shouldn’t mess people around. Be fair, just don’t be foolish.
Making payments by EFT on the last day that they are due will keep you current with suppliers while ensuring that you get the full benefit of your credit terms.
9. People Power
You don’t need a whole army of accounts payable personnel in order to effectively manage cash flow. But even if you’re a one-man-band or a small tight-knit team, you need to know who is responsible for managing cash flow.
Clearly assign ownership of chasing payments and managing cash to someone on the team. Develop metrics. Set targets. Reward performance. Don’t let cash flow become an afterthought. Pick the right people and allocate enough resources for them to do the job effectively.
10. Have a Back Up Plan
Even the best businesses, with the most comprehensive cash flow management processes, can experience shortfalls from time to time. Familiarise yourself with the various credit facilities available to you and have contingencies in place.
A lot of great local businesses still struggle to access overdrafts, stocking loans or working capital from the banks. But there are other options. Things like Invoice Discounting, Factoring, Purchase Order Finance and Peer-to-Peer Lending are all viable alternative sources of finance for small business owners.
Linked Finance offers Irish SMEs a great way to raise short-term loans for working capital. We offer a fast, hassle free approach to business loans that can help you to maintain a healthy cashflow situation as you grow your business.