How to improve the cash flow of your small business

Cash flow is undoubtedly the big killer of small businesses. No matter how ‘successful’ your company may be, if it hits cash flow problems it can soon see a rapid decline and even lead to its closure. If you have no money to spend, you can’t operate and your business will cease to function.

However, there some simple ways to help ensure a healthy cash flow for your business:

Establish a debt chasing process

Some small business have a rather haphazard method of credit control so it is vital that this is tightened up and procedures are put into place. That means things like follow-up calls taking place after certain intervals, invoices being re-issued a limited number of times leading to more serious courses of action. The fact is, the longer a debt remains unpaid, then the harder it becomes for you to collect and not having rigorous credit control immediately weakens your position when seeking payment.

Analyse your cash flow

When was the last time you analysed your cash flow? Have you ever analysed it? Depending upon your type of business, you may find that there are certain trends at different times of year. For example, a fancy dress hire business will almost may see the majority of its business in the last quarter of the year (Halloween, Christmas) whereas a chocolate seller may see peak periods at Easter and at Christmas. Collating cash flow information can help you do many things such as timing your company borrowing and planning the correct amount of staffing, all of which can help improve your cash flow.

Consider changing your payment terms

If you currently offer 60 day payment terms, have you considered revising these to 30 days? Of course this may not always be possible with certain clients but it is worth considering. Another idea is to offer a small discount to customers who pay their bills before the due date.

Ensure your invoices are accurate

Did you know that over 85% of the reasons for an invoice being paid late are down to invoice queries due to inaccuracies or poor administration? Always ensure your invoices are 100% correct, are invoicing the right amount and you are sending them to the right place.

Understand your customers’ payment procedures

Many companies have specific times of the month when they pay invoices, so it can be a good idea to know these and incorporate them into your invoicing. Always invoicing before a payment run should ensure that you get paid promptly whereas if you just miss it, you’ll have to wait another month.

Consider loans for larger purposes

If you usually pay for larger purchase such as equipment, cars or computer systems outright with cash, then you should consider taking out a loan instead. Yes this will involve paying interest but it spreads the payments and will free up some money that can help tide you over when cash flow is problematic.

Consider invoice factoring and discounting

If you’ve never considered invoice factoring or discounting then you really should look at it as it can be extremely good for improving cash flow. Upload details of your invoice to the factoring company and they will pay your business a set percentage of each invoice that is sent. It then collects the invoice, paying you back the balance, minus their fee. Invoice discounting is a little different as you collect your own debts but the lender still advances money against them. Like factoring, there is a charge for this but it is often a little smaller than factoring Both are cost effective ways of solving your business’s cash flow worries.

If you’d like a free, no obligation chat about improving your company’s cash flow then call Factoring Solutions on 01827 707680 now

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