If cashflows are not managed carefully, even very profitable businesses can soon become unstuck. There are several things a business can do to optimise cashflow. The following suggestions may help.
1. Establish clear payment terms for your product or service and ensure that customers understand your expectations on this point.
2. Invoice your customers promptly.
3. If possible, structure your payment terms in a way that brings in more cash more promptly. Depending on the areas in which you operate, it may be possible to request payment in advance rather than in arrears, or in stages, or under a 'subscription' type model.
4. Make it as easy as possible for your customers to pay you. Can you offer a wider range of payment options - for example, does your business offer Direct Debit services? Can your business accept payment by debit/ credit card?
5. Enforce good credit control discipline. Monitor your aged debtors (it's easy to do this with modern accounting software like Quickbooks), chase overdue debts promptly, and escalate matters if need be - in extremis, consider the Small Claims Court.
6. Consider maximising any credit terms offered to your business by suppliers.
7. Review your pricing strategy. Can you increase prices in order to improve margins?
8. Regularly prepare and review cashflow forecasts to identify and address any projected funding shortfalls before they arrive; it is better to spot a funding gap and address it in advance, rather than going cap-in-hand to the bank once the problem has already arisen.
If you'd like to discuss how to better manage your business's cashflow, we'd be pleased to help - just get in touch today. Our Guide to Business Planning may also be of assistance.
