Six Important Tips To Improve Your Cash Flow

There’s a common statement amongst business people at all levels and that is ‘Cashflow is King’. Most people who follow this little metaphor have learned that little in business survives without it…

It is sometimes so, so easy to get caught up in the roundabout of business. There’s marketing advertising deadlines, new products, administration, staff issues, recruitment, selling and then more selling: You also need to focus on the cash collection of those sales. You’d be surprised how many good business people forget to collect what is owed to them. This can later cause immense problems in the running of your business and many business people don’t see it coming.

Here are 6 tips to ensure you have a better chance of collecting your money:

1. Ask for a retainer or down payment on projects so that your customers fund the project, not your business.

2. Set your terms to say ‘payment in full’ at completion. Don’t extend out 30 or 60 days after you’ve completed your work. Never, ever give 90 days. You will pay interest on the money you borrow while your money is caught up in this delayed payment schedule. Poor cash flow costs you money it just isn’t apparent all the time.

3. Always negotiate terms with your vendors for 30 days or more so you can complete the work, bill your customers and receive payments prior to paying your vendor. This creates a positive cashflow.

4. Establish a solid collection process, and make sure it’s continuous (automated where you can) and nothing is left to memory. When your customers delay paying, they’re using your cash. You must be persistent but fair and courteous.

5. Set up a line of credit at your bank that you can use in case of emergency. Often, lenders rates will be less than the late fees your vendors will charge. This line of credit will help you cover a lapse in cash flow for short periods of time. However, this will have an interest rate attached and you really don’t want to be using this facility unless you have to.

6. Factoring your invoices lets you sell your invoices and receive cash now instead of waiting 30 or 60 days. There’s a fee for using a factoring service but they vary from company to company. You need to ensure that the benefits of getting cash today exceeds the cost you’ll pay for having that service.

You may not be able tpo apply all these options at the same time and gaining access to factoring services requires approval. You’ll need to look into this further if you think it’s of use.

Here’s an important note:

Please don’t think that everything else is more important than cashflow. Poor cashflow can force you into bankruptcy even when you’re profitable on the balance sheet. Make the required changes as soon as possible and avoid the age old problems early that have plagued many a small business owner.

Now you know why cashflow is king. If this is a little confusing, as it can be sometimes, I would highly recommend chatting to your accountant and learning everything about cash flow you can – it’s essential.

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