Make cashflow a key priority
A lack of cash is one of the biggest reasons businesses fail. Having good cashflow puts your business in a better position to grow, invest in new products, pay staff and negotiate better supplier discounts. Cashflow is vital to the health of any business and you cannot prosper without enough cash to meet your immediate needs. Therefore, cashflow needs to be a key priority.
You should be able to see how much you owe, how much you are owed and how much you have in the bank. There are plenty of accounting tools available to help you do this, such as Xero, Quickbooks and Wave.
“42% of businesses say they do not have the right level of cashflow to either operate efficiently or to grow.”Bibby Financial Services SME Confidence Tracker 2022
Improving cash management
Managing your cashflow will allow you to improve operational efficiency, better manage your costs and mitigate operational and financial risk. It also requires information and you will need to regularly review your data on:
- Customers' creditworthiness
- Customers' current track record on payments
- Outstanding invoices
- Short-term cash demands
- Short-term surpluses
- Current debt capacity
- Suppliers' payment terms
Effective credit control
Effective credit control can mean the difference between success and failure. It's an important aspect to running a successful business because, without money coming in on time, your cashflow can be impacted. As soon as you launch your business, you should make sure you have effective credit control measures in place.
There are some simple tasks that you can do to make sure your credit control is effective, which include:
- Have a purchase order system to help avoid surprises later
- Invoice your customers on time and make sure you send them to the right person
- State your payment terms clearly on invoices
- Ask for advance payment where possible
- Chase for payments by email, letter and in person
- If they still haven't paid after 30 days, put all further work on hold until you receive payment
- Check your debtor days every month
- Carry out credit checks on customers and set credit limits
You can also work with specialists in cashflow finance, who provide access to a flexible source of funding that matches your business requirements:
- Factoring: you receive a combined funding and credit control service.
- Confidential Factoring: you receive a confidentially run funding and credit control service.
- Invoice Discounting: you receive a funding only service.
- Trade Finance: you receive funding to buy goods from UK or international suppliers for resale to your customers.