It’s essential for businesses to be on top of their Cashflow for when things go bump in the night.
This way they are in the strongest position possible when something doesn’t go as planned and avoids ending up in a crisis.
1. Make it easy for your Customers to pay you
- Impress them with your service and product quality rather than a relaxed attitude about being paid.
- Invoice your Customers regularly (daily or weekly).
- Display all necessary descriptions and information such as Purchase Order references on your invoice.
- Attach relevant paperwork.
- If e-mailing make sure scanned attachments are the correct way up & print properly.
- Send monthly statements.
- Have multiple payment methods EFT, cheque, credit card, direct debit and PayPal.
- Make sure the total and payment method are the clearest information displayed on your invoice.
- Follow up with friendly reminders by phone, e-mail and letter.
2. Negotiate timing of payments with both Customers and Suppliers
- Focus on more than just price.
- Shorten Customer payment terms.
- Lengthen Supplier payment terms.
- Try to match your Customer and Supplier terms as best as possible.
- Clearly define your Customer returns and warranty policies, specify a limited time to return purchases or raise an issue.
3. Regularly clear out excess inventory and other idle or underutilised assets
- Hold only fast moving inventory that is in high demand.
- Consider longer lead times for Customers who buy slower moving items occasionally or items which cannot be readily sourced from other suppliers.
- If you have inventory in boxes going yellow with age covert it into cash.
- Equipment and other assets gathering dust and not generating income cost you money so consider selling them.
- Auction houses are useful to clear excess inventory and assets.
4. Set up a 3 Way Cashflow
- Monitoring your bank balance alone is not enough to understand business cash flow.
- Speak to your Accountant about setting up a 3 Way Cashflow.
- Understand the timing of potential cash shortages.
- Know your future business funding requirements.
- Identify additional cash levers to rely on when things don’t go as planned.
- Making profits on paper, if the bank account is empty this will help you answer the question – where has the cash gone?
5. Be prepared, know in advance what Cash Levers are available when things don’t go as planned
- Hard decisions are easier when considered prior to a crisis situation.
- Know your Cash Levers, things you would not do necessarily in the ordinary course of business unless facing a cashflow shortage or potential crisis.
Need further explanation or have a tip of your own. Let us know, we’d like to hear from you.