1) Speed up customer payments: Consider offering discounts for faster payment. It may sound counter intuitive, but if you offer a 2.5% discount and with the cash injection can clear a loan or credit card at 9% then it may be beneficial.
Build a system and use software like Xero and Chaser to help chase debts and receive payments sooner. Make sure you follow up debts routinely and keep in contact with customers.
Make it easy for your customers too. Make sure your bank details are on the invoice, and consider signing up to something like Stripe to accept card payments and have payment links in your invoice.
2) Invoice on time: Make sure you have a robust system in place to ensure sales invoices are sent on time to customers, when the work is completed or when your contract allows. Also confirm where invoices should be sent so they don’t get missed, should they go to the company director, or an accounts department.
3) Applications: Similar to the above, have a system in place to ensure application for payment are made on time in accordance with your contract with the customer.
4) Retentions: Make sure you have a list of retentions. Schedule retentions in your calendar or workflow and ensure they are invoiced after an appropriate amount of time has passed. Also remind your customer a month or two before that the retention is becoming due.
5) Increase profit: Seems like an obvious one, but if you increase profit in your business and don’t withdraw that as dividends or spend it on assets then your cash balance will start to grow. Look at your gross and net margins and work on how to improve them.
6) Reduce costs: Overheads are often an investment in the business, such as advertising to bring in more customers. However, if you are spending on unnecessary overheads it can drain cash fast. Look through your overheads and monthly direct debits and see what can be saved.
7) HMRC and Tax: HMRC are often willing to allow payment plans for VAT and Corporation Tax payments. They will charge interest, however if agreed in advance they won’t charge penalties. One advantage of trying to arrange a payment plan with HMRC is you don’t need to make a formal loan application, and you won’t be charged an arrangement fee, unlike when you take out a traditional loan.
8) Systemise Debt Chasing: If you have trouble collecting debts from customers then you must have a robust system in place for debt chasing. I would strongly recommend using software like Chaser for this to save your time and ensure it is done within the terms you apply.
9) Take Out a Loan: If you have a short term cashflow problem then you can consider taking out a loan to help cover you. If you go down this route you must plan out the next few months, maybe even the next two years. You also need to be certain where your cashflow problem comes from. If profits are reducing and you are unable to repay the loan then this might cause more problems than it solves.
10) Agree Better Credit Terms: Speak to your suppliers regularly and negotiate better credit terms with your suppliers. Shop around and consider changing suppliers if they can offer you better terms. Can you increase your credit terms from 30 days to 45 days? Don’t pay suppliers late, but negotiate more favourable terms.
🔑The Key: The Key to good cashflow management is systems and processes. There is no miracle for cashflow, your suppliers won’t give you 180 day terms and your customers won’t pay in 3 days. It is important to understand how the numbers in your business correlate, or engage and advisor that can help you. Overtime by tackling each issue you can greatly increase your cashflow, elevate your business and reduce the stress of cashflow management.