If your company struggles with cashflow, you’re not alone – most small businesses experience difficulties balancing the books. Follow our tips to take control and eliminate one of the biggest sources of stress in running your business.

Get organised
Keeping accurate and organised records will enable you to keep track of your finances more easily.

  • File all invoices, statements and any other paperwork so it’s easy to find.
  • If you prefer to do things online, ask your bank, utility providers and other major suppliers if they can offer online account management.
  • Set up direct debits or standing orders for regular business outgoings such as rent, telecoms, energy bills, loans and credit card bills.

Invest in accounting software
There are lots of business accounting packages available, and the choice can be mind-boggling, so do your research and get some advice before you buy.

In addition to keeping your finances straight, a good accounting system can automate processes such as emailing invoices out to your customers, sending payment reminders and so on. This will save you a lot of time, and puts you one step away from any awkwardness you may feel about chasing payment from customers.

Set firm payment terms
This applies to both your customers and your suppliers – getting your Payment Terms clearly set in stone is the first step to taking control over your business cashflow.

While it’s tempting to submit to whatever credit period customers demand, this can be a slippery slope, and will only make it more difficult for you to meet your obligations to suppliers and pay your regular overheads on time.

By negotiating supplier payment terms which are at least as long as your cash flow cycle (the time it takes to produce and sell your goods or service, then collect payment from customers), you can bridge the gap between money coming in and going out again. Your supplier payment terms should at least match the customer payment terms – make them even longer if you can.

There are some businesses out there paying suppliers at 30-45 days (so roughly the month following date of invoice) while extending up to 3 months credit to their customers! Don’t fall into this trap.

Punish late payment
Late payers are the bane of every small business. In fact, late payment of invoices costs UK SMEs a shocking £8bn a year!

If a customer is paying you late for your work, ask yourself if you really want them on your books. Any kudos attached to having them as a client or PR mileage you can milk from any press coverage pales into insignificance when you face the fact that this company is actually costing you money.

Did you know: You are entitled to charge interest on late payments

You don’t have to offer customers this free extended credit. Always include a clause in your Terms and Conditions that states you will charge interest on late payment, and reiterate this on every invoice.

By following through on this clause, you will earn necessary respect from your customers, and may even weed out the late payers who will only add to your cashflow stress.

More about late payments and your entitlement to claim interest

Run your credit control like clockwork
Don’t trust that your customers will pay on time! Preempt payment delays by sending reminders before an invoice becomes due, and then chase any overdue invoices religiously.

Set aside a regular time to devote to chasing payment – by making it part of your routine it will feel less daunting and you’ll soon notice that your efforts are proving to be effective.

If you feel uncomfortable making these calls or sending overdue invoice letters just remember that every company you call is in turn doing the same thing to their customers – it’s all part of how business works!

Know your customers’ habits
Try to work with your customers in the first instance. Find out when their payment run is and make sure you invoice in plenty of time to be included in that month’s run. For new customers, call them as soon as you’ve sent your bill to find out when you will be paid – stamping out any bad payment habits early on will make for a stronger working relationship n the long run.

Keep ahead of the game
Plan ahead by building a cashflow forecast – what plans do you have for your business in the next 12 months? What do you need in order to get there?

Look for patterns in your spending, and plan your invoicing to tie in with those peaks. Gradually set aside money to cover you through the dry spells when orders may dwindle.

Every industry has its quiet spells, and most non-seasonal businesses will experience a lull in the summer and during the run-up to Christmas – yet you’ll still have staff to pay.

It’s important that you understand how your patterns of spending and collecting cash are going to impact on your business over time. Creating a cash flow forecast is an important part of getting to grips with what you can afford to spend based on your predicted sales. We would suggest creating a rolling forecast which you update a minimum of once a month. Don’t just create an annual forecast and then not update it to reflect your actual activity.

Be frugal!
Keep your costs down as much as possible. Consider any major outlay such as new IT hardware or hiring staff very carefully before you commit. Is there a less costly way around it?

Check regularly that you are not paying more than you need to for the goods or services your company uses. Committing to longer term contracts and eliminating unnecessary extras will usually save you money, so spend some time looking into supplier agreements carefully before you sign.

With a bit of organisation, and by negotiating with those you do business with, you can take a lot of the pain and worry out of your company’s cashflow. Let us know how you get on!

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