Top Tips On Managing Your Cashflow
Cash is one of the most important denominators when it comes to the financial management of a growing company. The gap between the time you have to make payments to suppliers and employees, and the time you collect what is owed is a difficult period, but this anxiety can be eased with effective cash flow management. Put simply this means delaying the disbursal of cash as long as possible, while encouraging anyone who owes you money to pay as quickly as possible.
Here are our key tips to help improve your cash flow
Understand cash management
You need to know where you stand before you can start improving things. Scrutinise accounts payable and receivable, credit conditions and stock, paying particular attention to any imbalances between the cash entering and leaving your business.
Invoice promptly
Clients will pay quicker if you invoice them as soon as you can. It’s important to set aside some time each week to create and send your invoices, making sure you keep all the information that you need to hand.
Make it effortless for people to pay you
If you can, offer a range of methods your customers can choose when they pay you. Bank transfers are often the preferred, but don’t forget cash, cheques, debit and credit card payments and money transfer services. Make it extremely clear when the ‘due by’ date is.
Be aware of payments
Keep a close eye on money coming in, this will help you stay on top of cash flow. To make accurate predictions of when funds will arrive, observe the habits of different customers. This will help you discover who is likely to need prompting for their dues.
Maybe offer discount
Payment may come sooner if they can pay a little less. A small discount of a few per cent may be enough, and have an advantageous impact on your cash flow.
Implement a formal credit policy
This will help you make speedy, precise decisions about how much credit to extend, allowing you to invoice sooner and predict payment dates with more accuracy. Asking for deposits (especially from new customers) could also help to keep some money in the bank.
Have a firm line on collections
You can then treat all customers fairly, helping to query overdue invoices sooner. Quite a few businesses operate a system of reminders that become gradually more serious and formal as invoices become more and more overdue.
Know when you owe money
The elementary way to exploit a cash flow programme is to pay all invoices you receive on the exact due date. Paying early can leave you short of cash at decisive moments. Make sure you keep a careful track of received invoices, this will eliminate missed payments.
Expanding payment times
This type of communication is easier with suppliers you know well, so try to maintain a strong, healthy relationship with all your business partners. This could pay off when things are tight by having a friendly word to find out if you can spread your payments or extend due dates.
Improve stock management
Inventory on shelves is ties up money that could otherwise facilitate cash flow. Keep a daily track of sales and make sure the items you have in stock reflect these patterns. Importantly, figure out which stock generates most revenue and make sure you focus on keeping a store of those lines.
Good cash flow management comes down to maintaining accurate records, so you can see historical trends and identify improvement areas. These days, good accounting software is a must and will be invaluable in speeding up the process of invoicing, including pursuing payments, try to find one that helps you manage and forecast your cash flow as well as stock levels.