Five top tips for managing cashflow

A healthy cashflow is the lifeblood of any SME. Your business might have an excellent profit margin and revenue but if you don’t have cash in your account when the rent is due, you’ll be in trouble.

Most small business owners have cashflow on the brain a large percentage of the time. The conditions at the moment are akin to a perfect storm- on the one hand, everyone knows that banks are reluctant to lend to SMEs, and on the other hand, large corporate clients are extending payment terms to hoard cash, thereby choking their suppliers.

Here are our top tips for managing your cashflow:

1. Fail to plan, plan to fail

Remember what your scout leader used to say? Planning is crucial to any undertaking, and running a business certainly requires a bit of forethought.

You should be mapping out what your income and outgoings look like over the short, medium and long term, and sticking to a strict plan. You need to know exactly when to realistically expect payment for each and every invoice, so that you can plan how and when you’ll be paying for staff, rent, bills and other costs.

You can use a simple Microsoft Excel spreadsheet to track your bank balance, or a more specialist software package such as Ooble. Either way, make sure you know when to expect cashflow issues so that you can plan to avoid them.

2. Do your research

When you’re selling to other businesses, don’t just offer standard payment terms of 30 days across the board. You need to do some due diligence on the company who’ll be buying your goods or services to make sure that they have the means and willingness to pay.

Use an online credit checking service such as Duedil or Experian and make some judgment calls based on the company’s age and the history of the directors. If they’re a new business or if they have had issues in the past, such as CCJs, why would you give them the same payment terms as a healthy, stable corporate?

It’s OK to negotiate based on these factors, so don’t blindly give all your clients the same terms.

3. No more mistakes

If you want to get your invoices paid on time, you’d better make sure that there are no mistakes on any of the documentation. Nail down your invoicing process and make sure that a senior member of staff has to sign off each invoice before sending. The checklist should be:

a) The current contact details of your customer including their address
b) The right invoice number and date
c) The right payment terms
d) The correct amount and the correct amount of VAT
e) Prominently displayed payment details (make sure you’ve listed the right bank account number and sort code)

Without these checks you’ll inevitably encounter resistance from time to time when there is a small mistake on your invoice, so make sure there are no excuses for your customers not to pay.

4. Keep on top of credit control

Credit control is nobody’s favourite thing to do. But if want to maintain a healthy cashflow you’ll need to get used to asking the people who owe you money to pay up.

Become front-of-mind with whoever is in charge of the accounts payable at your customer’s site. Try and befriend them, and chat to them on the phone regularly. It’ll mean that when they have a choice between paying your invoice or another invoice, hopefully you’ll be front of the queue.

If, for any reason, your invoice becomes overdue, you need to have a plan. Try and tease an exact payment date out of your customer and hold them accountable to it. If they don’t pay on that date, get serious. Escalate the issue if necessary to your manager or MD.

You should also be flexible, to a degree, with any non-payers. Tell them you’ll accept a part payment if they say they don’t have the cash. Be strict- but bear in mind that if this is a key client, you won’t want to chase too hard, and create enemies.

5. Look for finance to bridge gaps

Having planned your cashflow and cemented your credit control, if there are still foreseeable periods of time where you’ll be short of funds, look at the finance options available.

At MarketInvoice we offer clients the choice to sell an invoice as and when they want to, without contracts, debentures or personal guarantees. Selective invoice finance is a great way to ensure that your cashflow keeps flowing at those points where you’re waiting for your customer to pay.

Getting this type of finance in place will help you take advantage of more opportunities, so that when you need to buy in more stock or hire a new employee, you can have the funds in place quickly.