cash flow

(image provided by smallbusiness.co.uk)

Cash is king for most business, and for those that its not, it probably needs to be…

Finding ways to optimise the flow of money is essential. Even if you are a profitable business, you can easily find yourself cash-strapped if you don’t keep a close eye on your cash flow position.

With team wages to pay, supplier bills to settle, taxes, loan repayments and capital investments to make. The very existence of your business can be severely threatened by a badly managed cash flow.

Most businesses, on occasions, suffer at the hands of customers who are late in their payments. For some customers, this is a constant state. And for others, it’s a temporary situation, because of their own business circumstances.

Here are 6 simple ideas to help your business cash flow:

1. Manage Your Accounts Receivable

A proactive collections effort should be at the top of your list. Your cash position massively impacts your ability to do business, so stay on top of your aged debtors on a weekly basis. Constantly measure how long on average it takes for you to receive payment and watch for any trends that show this is getting longer.

If not already in place, you should have documented payment terms, which are communicated to customers.  The invoice and follow-up process should start as early as possible. Get your invoices out as soon as the product ships or the work is completed. Be clear on your invoice what your terms are and enforce them. Automate the process of sending out statements and over due notices on a timely basis.

If an over due notice doesn’t work, call your customer. Over due notices that are followed up with a “friendly voice reminder” often bring payments in sooner.

2. Use a direct debit system

Technology has massively advanced these days, so it makes complete sense to use it as part of the your cash flow strategy. There are really simple online direct debit systems (such as Go Cardless) now available, which are very low cost and easy to administrate.

Some people are still a little scared to ask customers to sign up to a direct debit. But, we can assure you, most people are used to them, and not just at home either. These days, most business owners pay most of their operational bills through some kind of direct debit system.

The easiest way to start rolling this out, is to make it part of your new customer sign up process. Any new customers that want to do business with you, just ask them to sign up to your direct debit service for payment. Just let them know, when their invoice becomes due for payment (in line with your agreed and documented terms) it will automatically be taken by direct debit.

3. Negotiate with Your Suppliers

Many of your suppliers will offer some kind of discount for early payment. You may have to negotiate a little with them, but many of them are also concerned about cash flow and will likely entertain the idea.  On the flip side and instead of a discount for early payment, you might want to negotiate payment extensions that will push out your monthly outlay. Quite recently (just by chance) we found out a couple of our suppliers offer 60 day terms (instead of the normal 30 days), and we just had to ask them and they were happy to authorise it.

4. Accept Credit Cards

For customers with tight cash flow, offering credit card payment can be an effective way to improve your collections. You’ll have to pay the merchant services fees, but this may be a worthwhile investment when you factor in the cost of collections and your own need for cash flow.

Technology has again advanced greatly in this area, and there are flexible low cost easy to use options (such as STRIPE) available, not just the traditional merchants. It’s worth investigating your options in this area, and choosing a partner that works for you.

5. Manage Your Bill Payments

The idea is to collect as quickly as you can and pay as slowly as you can, without upsetting or causing difficulties with your suppliers (its a very fine line). It makes sense though to use the accepted payment cycles that are built into the payment terms of your suppliers. Study your suppliers to learn when their billing cycle starts and the length of their grace period (if they have one). One of our suppliers give us until the 7th of the following month before they put us stop, and another gives us until 5th. But others will put us on stop immediately.

In these instances, consider making payments on either the due date or the grace period date, using an automatic electronic payment rather than paying in advance. This has to be handled carefully, as you don’t want to jeopardise your credit rating or your relationship with your suppliers, but it can be an effective way to maximise your cash out-flow with your collections.

6. Subscriptions

Subscriptions can be a fantastic way to help your cash flow. If you’ve got a particular product or service that your customers consistently need or want, consider offering it as a monthly charge via a direct debit service. This way your customer can have the product whenever they need or want it, will pay the same price each month and you will get your money straight away (without having to chase it) every single month.

We’ve developed a number of monthly subscription services and our customers love them. They really help with their budgets, as they know exactly what they are paying out on a monthly basis and they can order whenever they need the service without having to worry about the price. Have a look at our infinity printing solution and our cloud based telephone service as a couple of good examples.