From my experience in large and small businesses you can see the issues that help or hinder cash flow.
I have tried to summarise the key points in controlling your cashflow. This will resonate mainly with smaller / early stage businesses but it also applies to larger organisations.
1.Get Customers to pay on time
- When you agree terms with your customers, ensure that you have agreed the payment date as a key item.
- Put the due date on the invoice and in any contract documentation.
- Put the terms on your web site terms (if applicable)
- Send your invoices out on time. Don’t send them out late or it will delay payment
- Consider a discount for early settlement
- If not settled on time, call them up or email them and remind them. If you don’t chase quickly a pattern of late payment will become the norm very quickly.
- If customers will not pay, have an agreed procedure to chase them before giving them a warning. Chasing by phone is usually the best and harder to ignore.
2.Spread your payments
- Spread the payments over a period. If you are hiring or leasing equipment, this is normal practice. A lot of suppliers will be helpful but you must stick to the agreed terms.
- For example, you can pay a small monthly fee to use an online accounting package such as Xero rather than paying a large up-front fee to buy a software package.
3.Don’t buy unless it is critical and you have no other option
- If you need equipment, try to borrow or rent or share someone else’s equipment first before you buy.
4.Keep fixed costs down and go for payments that vary with your business cycle
- Keep you fixed costs as low as possible. For example, start by renting a space in a business centre and keep the flexibility to increase when the need arises. The number of flexible office lettings has increased significantly in recent years.
5.Negotiate terms and then stick with them
- Negotiate with your suppliers and agree the terms. If you stick with the agreed terms, then you will improve your reputation and help to get an improvement in terms as you grow.
- It’s not enough to know what your daily balance is. You need to forecast in writing at least a couple of months forward so you can anticipate and handle any dips. The key is to keep it simple and easy to understand.