Posted December 15, 2015
5 tips on how to improve cash flow….
It seems simple, the best way to improve cash flow is to collect debts quicker and pay your suppliers more slowly. But, I hear you say, if it was that easy you wouldn’t have a problem . There are so many other forces at work – the main one being every other business is trying the same strategy. Unfortunately, there aren’t any quick fixes for improving your cash flow but these five tips will help you on your way.
Prepare a cash flow forecast
If you don’t already prepare a cash flow forecast, this is one of the best ways you can improve your cash flow. It should show you where your cash currently stands and where it will go in the future. A rolling 12 month cash flow is fine for most companies. You should map out things week by week, you’ll see where you expect surges in expenses such as the rent quarter, VAT payments, or the purchase of a large piece of equipment ahead of your main sales season when you may receive several payments at once.
Evaluate your terms
Check how well your customer and supplier terms are balanced. If you give your customers 90 days to pay but you are expected to pay invoices on a pro-forma basis you are heading for trouble. You would need to have a much higher working capital than if you balance your credit offering to your suppliers’ credit terms. Do some research to establish what terms your competitors are offering or if changing suppliers would get you better terms. You might find that you’re missing out on a prompt payment discount – but be careful to make sure that the discount is worth it.
Collect your debts quicker
This is often overlooked especially when you are busy managing your business and making those all-important sales, but perhaps your debt collection has slipped. Bear in mind that a quick call to chase payment could be turned into a way of improving customer service or even a new sales opportunity. Call ask your customers if there is a problem with the product or invoice that is delaying their payment.
If you don’t have the time to call and chase every single invoice focus on the bigger debts, or the ones that have been overdue the longest. But if you are not getting any results don’t be afraid to send them a stern letter or refer them to solicitors – you may lose their business but if they are constantly avoiding paying your invoices do you really want them as a customer?
Establish a business wide policy
If collecting your debts on time is a priority, ensure that everyone in the business is aware of this. Instead of setting the sales team a sales target, consider changing their target to one that rewards them once their sales have been paid. If the sales team is only rewarded by volume of sales, there is no motivation to ensure that they sell products to customers who are going to pay on time.
We hope these tips will help you on your way to improving your cash flow, but if you need any assistance preparing a cash flow forecast or want to discuss any issues raised in this blog please get in touch.
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