Money comes in; money goes out. Managing your cash flow may seem as simple as subtracting your outgoings from your income, but in fact it’s much more complicated and poor cash flow management has ruined plenty of businesses. Follow these six steps to keep your cash flow healthy!
Everyone knows you should be clear about your payment terms, and stick to a 30-day payment period, but that’s not enough. You need to invoice quickly, chase before the term is up, and be ready to take out a County Court Judgment or go to the Small Claims Court, if your terms are broken. You don’t want to lose paying customers, but if you’ve been reasonable and they’re still not coughing up, a CCJ is a quick and easy way to get their attention. No one wants their credit rating damaged and often the threat is enough.
Run credit checks on potential clients to assess how likely they are to pay. You can get an affordable subscription with a credit-checking company if you’re likely to run checks regularly. Ask for initial up-front payments. Don’t take on more work or orders from a client who owes you money. If they consistently don’t pay, stop doing business with them.
Keep clear company accounts up to date and use these to forecast income and expenses in upcoming months. Make separate forecasts for different scenarios, with different levels of non-payment. Use your forecasts to manage your expenditure, schedule in your tax payments, decide if a loan might be useful, and to set sales targets.
If you have to buy an expensive asset, it might seem counter intuitive to pay interest on a loan rather than using cash, but spreading your costs over months or years means you have more money in the bank and your expenditure is more predictable. It’s also worth considering getting a loan if you land a large contract, and will be investing time, resources and cash before you receive payment.
If you’re regularly in touch with your clients a build a good relationship, they’re much more likely to pay you on time. Don’t feel awkward when chasing or you’ll say the wrong thing or set the wrong tone. People are much more likely to take action following a phone call than an email.
Pay your suppliers promptly, then use your gold record to negotiate longer payment terms.
Cashflow problems? Talk to us
We have the right technology and experience to help minimise cashflow risks and to help where you are experiencing cashflow problems. Give us a call or email to find out how we can help.