Are you struggling with late payments?
All business owners know that cash is the lifeblood of any business.
The key to improving your cash flow is to monitor your outgoings as well as your incomings – this means you need to manage your expenses as well as your sales.
We outline below some tips on how to improve the cash flow health of your business.
Send Invoices Straightaway
Once you have completed work for a customer, you need to send the invoice out immediately – the quicker you send out invoices, the faster you will be paid for that work.
Send Invoice Reminders
Make sure you are on top of your credit control by issuing reminders a few days before the invoice is due to be paid – also send reminders on the day the invoice is due and a few days after the invoice payment date has passed.
Offer an Incentive for Early Payment
If you have customers who pay their invoices before they are due, you could offer an early payment discount – this will encourage customers to pay faster.
Late Payment Penalty
If you have customers who always pay late, put in place a late payment penalty to encourage them to pay you on time.
You need to make sure that your late penalty policy is clearly stated in your contract terms and conditions, and is clearly stated in the small print on the back of your invoice.
Invoice Finance
You could consider using invoice finance – this is a facility provided by an invoice finance company whereby they leverage your unpaid invoices in order to provide an instant cash injection into your business. It is a way for businesses to borrow money against the amounts due from customers and can help to improve cash flow, pay employees, pay suppliers and reinvest in operations earlier than anticipated.
Another benefit of using invoice finance is that you are paid the majority of an invoice within 48 hours rather than having to wait 30+ days.
Reduce Operating Expenses
Improving cash flow isn’t just about getting more cash into your business – it is also important to look at the cash that is going out of your business by looking at your operating expenses. The steps you may want to consider are:
- cut out unnecessary expenses;
- streamline business processes;
- update technology and equipment;
- lease equipment;
- buy in bulk from suppliers.
Manage Inventory
Every business needs inventory to make a profit, however, you need to make sure the inventory you are buying is actually selling. If you have old inventory that isn’t selling, you could consider liquidating it – you want to make sure you are focusing on the products or services that sell the most in the least amount of time for the highest profit.
Streamline Business Processes
Are manual tasks taking up too much time and resources? If the answer is yes, you may want to look at switching your accounting process to a cloud accounting software platform.
As Xero Gold Partners, we recommend switching to Xero as there are many benefits such as:
- eliminate manual tasks;
- save heaps of time;
- accurately process all accounting tasks such as bookkeeping;
- see how your business is performing in real time.
Pay Suppliers on Time
Make sure you pay your suppliers on time. If your suppliers offer a discount for paying early, it would be wise to take up that early payment discount to save money.
Consider a Small Business Loan
Another way to increase cash flow is to take out a short term loan or finance – the reasons you may want to take out a business loan are:
- you want to expand your business;
- you want to purchase new equipment;
- you want to purchase inventory;
- you may have unexpected expenses to pay;
- you are taking on a new project.
We have partnered with Capitalise and have access to many approved lenders who we can match to your business – contact Lee Sugden on 0161 761 5231 to discuss your requirements.
Purchase Better Equipment
One way to improve efficiency is to invest in better technology and equipment – the initial outlay may be costly, however, new equipment will enable you to work faster and smarter, saving you lots of time and reducing wages.
Purchasing new equipment will enable you to increase production and take on new projects, leading to more cash coming into the business.
Consider Leasing Equipment
If you don’t want to invest in new equipment, you could consider leasing instead – this will help you to have the newest model without having the initial outlay of buying. One of the benefits of leasing is that the lessor will often cover repairs and maintenance as part of the lease agreement, saving you money and improving your long term cash flow.
Upsell to Existing Customers
It is much easier selling to an existing customer than it is to new customers – you could look at offering new products and services to existing customers as this will give you an opportunity to improve cash flow.
It’s a Wrap
We recommend that all business owners have a cash flow management system in place where you can regularly review and update your budget.
You may want to consider implementing cash flow forecasting software – we have partnered with Futrli, which is a cash flow forecasting platform that integrates seamlessly with Xero and QuickBooks. Please contact Lee Sugden on 0161 761 5231 to discuss your requirements.
For strategic help or advice on how you can improve the cash flow health of your business, please contact our Business Advisers, Lee Sugden or Mark Tooby, on 0161 761 5231 or email theteam@horsfield-smith.co.uk.
