Tuesday 29th Jan 2019
Cashflow is essential in maintaining sustained business growth for both large and small companies. Managing cashflow will help control your business’ outgoings and regulate incomings so that peaks and troughs are avoided as much as possible. Getting it wrong can be detrimental, so we’ve looked at a few key practises we advise that are key in helping to improve a business’ cashflow.
Monitor Inventory and Outgoings
We would recommend regularly conducting an inventory and cut old products that have stockpiled and aren’t selling. Holding on to products because they might one day sell is holding on to potential income. Discounting products to make way for new lines will help increase cashflow and make room for better investments.
One way to circumvent outgoing spikes is to strategically plan payment of your business’ invoices, scheduling to pay them on the final payment day allowed in the terms. Spreading out payments like this will help to maintain cashflow levels.
Leasing equipment and supplies instead of buying them outright allows you to pay smaller increments over a long period and cashflow won’t be as affected by a large one-off payment. Most suppliers will have options for payment plans to allow for this.
Reduce Client Risk
Before working with a customer check their eligibility, we advise to run a credit check to reduce risk of late payments or communication problems. Contact credit report companies that will flag any potential issues the client may have previously had such as late or delayed payments or problems with suppliers. Base your decision on working with them on the result of the check and whether you think they’ll be reliable.
Make Payments Easy
Late payment issues are often caused by businesses that pluck at excuses to prevent payment for as long as possible. When filing an invoice, add as much information as possible to prevent clients making excuses about lack of information. Include account details, binding payment terms and dates so that customers no exactly where to send the money, who to and when by. This will avoid confusion and questions that could interrupt payments and disrupt cashflow.
Be wise about customer invoice payment dates when they are most likely to settle their accounts so that you don’t miss it. If you send an invoice close or just after their business payment date, you risk waiting a while to be on the next set of payments.
Discuss payment plans with customers to systematise regular payments ahead of time. This could also be beneficial for customers to pay smaller amounts over a period of time.
Make electric transfers available to improve ease of payments. There are a wide variety of payment platforms and invoice apps that enable fast, secure and easy payment online from customers to suppliers to avoid bank visits and time-consuming forms.
To encourage fast invoice payment, we would recommend offering incentives for customers to pay invoices on time. For example, this could be a percentage discount off the invoice or a better deal on the next order of products.
The Government advise to penalise later payments by adding a percentage charge onto all late invoice payments. Providing this is stated in the payment terms of the original invoice, a business can act on this when a payment is late and increase the cost of the original invoice, penalising the customer for the delay. You can find more information about on the GOV.UK website.
Value Relationships and Staff
It’s important to establish a good, trusting relationship with suppliers. This makes it easier to negotiate better deals, chase payments and smooth out any unwanted practices.
To optimise cashflow, we’d advise to review products and assets the business isn’t receiving best value from. This includes staff and suppliers. Investing in highly skilled staff has multiple benefits for the business, including reducing task time and cost wastage. When the business outgoings include payroll, you can be grateful in the fact that you are paying the best staff for the job.
Test Product Pricing
To improve cashflow, some businesses test how much their customers are willing to pay by gradually increasing product price. It’s a good strategy to see how much more money the business could be bringing in without losing customers. This should be done gradually so as not to deter customers.
Overall, to improve a business’ cashflow it is vital to assess the timings and necessity of outgoings and increase the value of incomings. There are easy alterations such as transferring the invoice and payment process online or undertaking a credit check, and there are changes that will take time such as improving supplier relationships or payment plans. Businesses small and large will require different types of alteration, but ultimately require management that ensures smooth running of outgoings and incomings.