Every business is all too aware of the importance of cash flow so we have put together our top ten things you can do to improve your cash flow and ensure it stays healthy.
1. Know your customers
Managing cash flow is difficult and when things begin to get a little tight, the first thing most businesses do is turn to marketing and sales to increase the amount of operating cash coming into the business.
However, these steps can often take time to come to fruition and can end up costing money upfront before any return on investment is actually realised. Therefore, having a negative impact on your cash flow.
We suggest that knowing your customers better is actually a more effective way of improving your cash flow as it means you can better predict their buying habits through closer dialogue and, are more likely to be the company they call to place an order as you understand their needs best.
Knowing your customers better can also improve your cash flow as it means you will have a firmer foundation from which to chase unpaid debts and potentially negotiate payment terms if necessary.
2. Forecast the numbers
You cannot hope to improve your cash flow if you don’t use some form of cash flow forecasting software. If you are not using forecasting software, you will be unaware of how your cash flow is going to perform moving forward.
There could be a potential short fall if the business has to continue paying wages at its current rate or, you could have a surplus of cash building up within your business which could be deployed or reinvested to ease operational issues. You won’t know the answer to this unless you are regularly forecasting your numbers.
If you don’t forecast your cash flow on a regular basis you are essentially running your business blind.
Try our cash flow forecasting software FREE today and see how you could improve your cash flow.
3. Tighter credit control
Credit control is an essential part of maintaining a healthy and consistent level of cash flow within your business so improving your credit control measures will ultimately help you improve your cash flow.
Introducing small measures such; as early payment collecting reminders, understanding customer payment patterns and spotting the warning signs of potential credit issues can all help to reduce the amount of credit owed to your business.
For more information on improving your credit control measures, view this video ‘Effective Credit Control’
4. Payment terms and other Ts & Cs
Every business should have their standard terms and conditions, alongside their payment terms, outlined clearly and brought to the attention of all customers.
However, if your Ts & Cs are not allowing your business to operate with a sufficient level of cash flow, you need to look at reviewing them so they do.
A common problem business fall into with their cash flow is when their incoming and outgoing payment terms do not match, meaning they are paying for goods coming in before they are being paid for the goods or services they are selling.
This cash flow problem can be improved by negotiating better payment terms with suppliers and also changing the payment terms on invoices issues to customers.
Review all of your Ts & Cs regularly to ensure they are working with, and not against, your cash flow.
5. Debt recovery
Sometimes, you just can’t get paid. You’ve done all the right things but you still haven’t received the money owing to your business.
Don’t be tempted to simply write bad debts off, investigate the process of debt recovery. Whilst you may not get all of the money owing back, some is better than none.
6. Monitor your investment income
There are other forms of income into a business other than sales and one could be interest from other investments; either cash investments or investments in other ventures.
A potential way of improving your cash flow is to ensure you are yielding the highest return possible from these additional investments.
7. Competitive business rates
There are a number of companies on the market who offer a ‘Compare the market’ type service for business rates and it is well worth investigating to see if you are getting the best deal possible.
8. Legislation
There are numerous legislation changes which could impact your business’s cash flow including:
- Changes to the living wage / minimum wage
- Changes in interest rates
- Pension regulations
- Health and safety regulations
- VAT rate changes
The list goes on but if you are not aware of the changes coming, or the impact they will have on your cash flow, you are going to get caught out.
This is another great reason to try our forecasting software – you can forecast different scenarios and see what impact each one could have on your cash flow, allowing you to put remedial measures in place before the impact becomes unmanageable.
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