Cash flow is the oil in the engine that drives the business and without it a business can seize up.
Maintaining or improving cash flow is a priority for all business, so our experts have put together some handy tips on how to improve cash flow for your business.
Use these tips to improve your cash flow
Produce a cash flow forecast. A cash flow forecast, showing when money is coming into the business and when money is due out, for at least 6 months ahead will help you identify how much money you need as a buffer. This is your working capital requirement and will form the basis of your plan on how to improve cash flow for your business.
- Introduce a line of credit. Approach your bank or creditable lender well in advance for any short-term business finance required to cover anticipated shortfalls in working capital.
- Utilise extended payment plans. Negotiating reduced regular payments with significant creditors over an extended period can be useful to pacify overdue creditors and improve cash flow. Such payment plans can be introduced confidentially.
- Negotiate “skip payments” to creditors on quieter months if you operate a seasonal business, and spread the costs over the remaining months.
- Negotiate payments that coincide with the completion of significant orders and incoming cashflow.
- Have a collection process in place. An intelligent debt collection process can ensure payment of overdue invoices and can often bring order to an otherwise contentious situation and avoid long running disputes.
- Invoice immediately on completion of services. By invoicing immediately upon completion there is no need to wait until the end of the month, you can speed up payment and in turn improve your cash flow.
- Automate your invoicing system. An automated flagging system or well managed diary system, can help you to organise your billing schedule, eliminate delays in invoicing and ensure that you act immediately on overdue accounts.
- Know the time of your customer’s payment run. Invoicing in-line with a customer’s payments run can increase the likelihood of getting paid promptly and on time.
- Introduce discounts for early payment of invoices. Build discounts and conversely penalty terms for late payment into your cost structure. Many business actually operate policies that require them to take advantage of such discounts, which are mutually beneficial to improving both parties’ cash flow.
- Request or take advantage of early payment discounts. Likewise taking advantage of early payment discounts from your suppliers, at times when you have a surplus of cash flow, can reduce your overall costs which over time improves your cash flow.
- Request progress payments on significant orders. Many businesses get caught up in the excitement of winning a large order or contract and can underestimate the impact on cash flow. Planning the cashflow as part of the contract is fundamental to agreeing the terms.
- Maximise your payables. If discounts are not available or cashflow is tight, take the maximum time allotted to pay your suppliers. This allows you sufficient time to collect the money due in and can be viewed as an interest-free line of credit from your supplier.
- Introduce retainers. A retainer may ultimately slightly reduce your profit margin, but can help to make cash flow more predictable and eradicate shortfalls.
- Accept credit card payments. Flexible payment options will increase your chance of getting paid faster. Credit cards also mean you can receive next-day value on your sales with reduced processing.
For further advice download our guidance paper ‘How to deal with a cash flow emergency’, or view the following relevant pages:
- Cash flow problems
- Symptoms of cash flow problems
- Cash flow solutions
- Cash flow funding
- Is your business suffering from cash flow difficulties?
- Cash flow problem? Have you considered invoice finance?
- How to improve cash flow for business
- Does the success or failure of your business depend on cash flow?