Improving Cash flow
Cash flow is the movement of money in and out of your business. Maintaining a steady flow of incomings and outgoings is important to keep your business running smoothly, as any short term disruptions could cause your business longer term problems. If you do encounter cash flow problems, there are some steps you can take to try and achieve a balance again. Keep reading for some basic guidance on how to improve cash flow.
Please note, this should be taken as high-level guidance only and is not financial advice. If you have concerns about cash flow issues, consider contacting an advisor.
Steps to Better Cash Flow
It’s important that you know and understand the flow of money through your business – both when it’s due in, and from what sources, and when it's due out. One of the better ways to see this flow is by taking the time to create a detailed forecast for your business.
Once you’ve done this, ensure that it’s working as well in practice as it did in theory, by keeping your forecast aligned with your actual figures at the end of each month. And, if necessary, re-forecast. Completing these checks regularly can help you spot issues in advance, identify inefficiencies, or see something that was overlooked in the first place - and ideally give you time to take relevant action. On the other hand, if things are working better than planned, you could decide how to best use, invest or save your increased profits.
If you’d like to read up more on cash flow forecasting, you can see our guide here
Speed Up Receipt Of Cash
There may be periods when it takes longer for money to come in than planned. On a small scale, this can be manageable, but if you’re encountering problems with receiving payments regularly on a larger scale, you may want to consider taking action to help speed things up.
Evaluate Payment Terms
If you’re not getting paid on time, it might be wise to rethink the terms of payment you’re giving your customers. Some simple means of doing this are:
- Shortening your payment terms. E.g. from 30 days to 14
- Including ‘Due Upon Receipt’ on your invoices (instead of ‘Payment Due Within 30 Days', for example)
- Depending on your customer/industry, request part of the payment before you carry out any work or deliver anything
Some accounting software can automatically send out invoices for both regular or ad-hoc payments, as soon as they’re due, and prompt customers automatically if a payment is overdue1.
If expenses are also to be charged on top of your usual invoices, you could speed up the process by attaching digital copies of the receipts along with the bill1.
Accepting Online Payments
If it’s appropriate to your type of business, consider providing a function that allows your customers to pay you securely online. By offering this convenience, you could increase sales, and, in turn improve cash flow, by cutting out the lengthy delay involved with sending out invoices and waiting for payment to be received.
Careful Use of Credit
Having a line of credit available, such as a business loan, overdraft or credit card, could help you to prepare for the unexpected and give your cash flow a boost when it’s really critical. For example, a customer could be late paying a large bill, or perhaps you need extra cash to fulfil an unexpectedly large order. However, you'll need to consider different types of credit that are available, as some are relatively expensive and not appropriate for long term borrowing e.g. credit cards.
Checking Customer Credit History
Depending on the nature of your business, it may be wise to check who you’re doing business with before delivering goods or providing services without securing payment up front. If you’re concerned over customers defaulting on payments, there are some proactive measures you can take to minimise this risk:
- Use Business Credit Checking Agencies: For large orders, it may be worth paying for a credit report on the customer, so that you have a good idea of how safe it is to do business with them. You can do this through:
- Consumer Credit Reports: If you’re working with a small business, run by a sole owner, checking his or her personal credit rating could give you an insight to how likely the business is likely to pay promptly2. The three main agencies for consumer credit reports are Experian, Equifax and Callcredit
Get Contact Information
As well as the name of the person placing an order with you, it can be useful to get the name, phone number and email address of the person in the accounts department who will be responsible for paying you. That way you can chase up payment more effectively.
Shop around for the best deals on everything you buy and don’t rely on one supplier just because it’s convenient. Although they might have the best price on an office photocopier, you could find a better deal on ink and paper elsewhere. And, why not check out comparison sites to ensure that your business is getting a competitive deal on the energy it uses?
A healthy cash flow is paramount to any business. Careful planning from the outset will give you a better chance of success, but if you do encounter problems, the steps in our guide may help give your cash flow a boost.
This content was created on 6th July 2018
Terms and Conditions apply, including applicants being resident in the UK & aged 18+ and, if relevant, businesses being based in the UK. For full website terms including information on Cashplus, Mastercard and use of Trademarks, please see our full legal disclosures at https://www.cashplus.com/legal/. **Credit facilities are provided by Advanced Payment Solutions Ltd (APS) and are subject to the AFL Cashplus e-money account being in good standing and applicants aged 18+. APS is authorised and regulated by the Financial Conduct Authority for consumer credit activities (Registration No. 671140). ♦Calls to 03 numbers cost no more than a national rate call to a 01 or 02 number and will count towards inclusive minutes in the same way as 01 and 02 calls. Calls may be recorded.