Cash is the lifeblood of all small businesses and ensuring that you are in a positive cash flow situation requires careful management.
Here are our ten key tips to help improve your cash flow...
1. Understand your cash needs
It sounds simple, but many business owners are unaware of the businesses current cash position i.e How much is in the bank, how much is owed in, how much you owe out and what are the monthly costs that keep you in business. You need to understand where you stand before you can start improving things.
2. Invoice customers asap
As soon as a job is finished, invoice. Don't sit on the invoice or wait until the month end. Customers will pay quicker if you invoice them as soon as you can. It's obvious, but it's still surprising how many businesses get behind on their invoicing.
3. Make it easy for people to pay
If your customers can choose how they want to pay you then there is no excuse for late payment. BACS is the standard form of payment however if you also accept cash, cheque, debit and credit card payments then you have all bases covered.
4. Keep a very close eye on payments
Understanding the payment patterns of your regular customers can help you stay on top of cash flow. Knowing the payment behaviours can help you to understand when customers may need a little nudge if they are late.
5. Keep invoices simple but informative
Does your invoice display the following; amount, due date, bank details, description of products/services delivered, alternative methods of payment, contact details? If not, update your invoice now!
6. Have a proper credit policy
Don’t just give credit to all customers as some may not be creditworthy. You can invest in an online tool such as experian or you can ask at your bank if they provide this as a service. A proper policy will mean that you check all customers in advance, minimising the risk and also if they have a bad credit rating you could always use this information to get payment up-front or a deposit (especially useful with new customers).
7. Make sure you collect in debt
Many business owners dread the thought of chasing that outstanding invoice, but it must be done because that is why you are called a business; to make money! Gentle reminders that gradually get more serious usually do the trick. You may need to use a debt collection agency as a last resort and don’t rule it out because that’s what they are there for.
8. Make your payments on time
Practice what you preach! Maximising cash flow isn’t just about monies coming into the business it is also about monies going out. Know when all of your bills are due and pay them on time, not early and not late!
9. Reduce your payment terms
You don’t have to wait 30, 60 or 90 days for payment, you can have payment on your terms. If you currently have cash flow issues and you are extending 30 day terms to all suppliers then consider reducing your terms to 14 days or even a week!
10. Add overdue fees
If you have clearly stated your terms on your invoice, delivered the goods/services on time and you customer still fails to pay the invoice on time then you are well within your right to charge overdue fees. Don’t go into this lightly as it may have an adverse effect on your customer relationships, but for a persistent offender it may be a good lesson learned. You can always provide a credit note for the overdue fees if you feel they have learned their lesson!