We have already looked at what cash flow is in a previous post and its impact on your business. In this post we will provide you with tips on managing and improving your cash flow. By implementing the following tips will help you better monitor your cash flow and provide you with a solid foundation to ensure the viability of your company.
1. Plan
If you make yourself aware of all repeated incoming and outgoing revenues in your business you will be more likely to understand your cash position and be aware of any business surprises. Having a plan in place will help you maintain a healthy cash flow because you can implement preventative measures.
2. Invoicing
It is important that your business always invoices on the day of a transaction. Delaying this invoice means that you’re extending the time it takes for a customer to pay you which has an effect on your cash flow. By ensuring your bank details are correct and that the invoice was sent to the relevant accounts section of the invoiced company, you can facilitate more prompt payment.
3. Identify major outgoings
If you monitor your accounts you will be able to identify what your largest overheads have been and could be. If there are other options available for you to help reduce costs you should try identifying them. For example if your business spends a lot on telephones you should try and source a new supplier. Another option your business may have is buying in bulk in order to reduce unit cost of goods.
4. Credit control
Every business should have a good credit policy with clear guidelines on what is permissible. To improve cash flow your business should streamline which supply companies receive credit. You may be required to impose credit limits on customers who have a bad payment record. A deposit for large transactions should be a requirement in order to facilitate meeting the cost of providing the goods/services whilst mitigating any impact on your businesses cash position. It may also be necessary to seek cash on the delivery of goods or services. Often your business will have to remind customer to pay. Do not neglect to remind them!
5. Payment terms
Your cash flow will improve greatly if you’re paid in advance or only offer short payment terms as your business will receive cash quickly. When paying suppliers you should only clear your invoices when the debt is due as it can be considered free credit for your business. You should maximise the term agreed to maximise your businesses cash flow.
6. Tax collecting
Many businesses keep a separate bank account with restricted access in which they put money that accrues as taxes as it doesn’t belong to the business but to the government. This is advisable as you will have what is owed to the government when you are required to pay it and so avoid interest and penalties for late payment.
7. Payroll
Having a payroll system in place will help you manage your cash flow as it will ensure that salaries and liable taxes are correctly processed.
All of these tips will help your business in managing and improving your cash flow. For more information on cash flow refer to our guide that we have created.
