It’s a point that can’t usually be argued; cash truly is king when it comes to running a financially sound and growing business. At its most simple, cash flow management means ensuring your business is paid promptly. In turn this enables you to make the relevant payments to your suppliers. Managing cash flow effectively can mean the difference between success and failure. Below we have put together some areas that will aid you in managing your cash flow so that it becomes a seamless and efficient business process.
Agree Clear Payment Terms
It’s so important to establish payment terms that are crystal clear from the very beginning. If you aren’t clear on your payment terms – how do you expect your customers to be clear on the terms? It is going to be extremely difficult to get paid; for instance, if you aren’t aware when a payment becomes overdue, how can you manage your cash flow?
A great example of clear payment terms is construction businesses working on government projects. An Act of Parliament commits to paying within 30 days down to the 3rd rung of the supply chain. Paying within 30 days simply makes good business sense; employees are paid every 30 days and suppliers should be paid within that time frame too. It would make good business sense for you to draft up your terms of business based on your preferences. It’s your business and you should determine how you do things.
Have a Dedicated Person
Small businesses often have to be particularly diligent with their cash flow; there can be regular substantial payments leaving accounts and the stream can become unpredictable. By nominating one person, such as a credit controller or book-keeper, to keep a close eye on daily credits and debits, you can feel safe in the knowledge that there is always a sufficient amount of money in the bank.
When it comes to a slow and disjointed cash flow system; many of the factors could be of a business’s own doing.
It’s imperative that you create a strategy that insures invoices are sent to clients as soon as work is completed. If you are lax on sending the invoice, and waiting 2 weeks before sending it you can guarantee that it will take an additional 2 weeks for it to be paid!
Make a habit of sending invoices via email, it’s an instant process and also provides a permanent record should you need it. Xero cloud-accounting software is great for doing this. Click this link to read more on this.
Offer Fixed Rate Payment Packages
Offering periodic payment packages can often ensure good cash flow, especially if you are freelance. Hourly billing is not appreciated by many customers. We know as we’re operating an accountancy firm!
By creating a retainer package that includes a fixed number of hours each month and invoicing in advance, you will be paid up front rather than in arrears; this allows you to plan business growth and spending whilst also providing stability and peace of mind.
Many businesses have chosen to adopt cloud based technology and have since saved time, work more effectively and maintain a better track of cash flow.
Cloud based business accounting software removes the worry of data back-ups and provides a degree of flexibility for business owners. It often means that accounts can be viewed when on the move across a range of devices, enabling them to keep on top of company financials.
Focus on Profit and cash flow
It is estimated that the majority of businesses start trading without a solid cash flow plan in place, although they will have forecasted profit margins for years to come.
If good cash flow is in order, it’s likely your profits will in turn be in order and vice versa. To be profitable, you must have good cash flow in place in order to survive..
Pay close attention to payment terms and to profit margins.