Having loads of orders on your books and being busy in your business is all well and good, but if the sales you make aren’t resulting in ready cash quickly enough you could find yourself in a tight squeeze.
Even the most successful looking businesses can find themselves in trouble if the accounts team aren’t keeping a handle on the monthly amounts hitting the bank account.
Ensuring you have a healthy cash flow is crucial and, like anything in business, takes planning and ongoing management.
Making sure you have a robust sales process that facilitates the flow can make all the difference in seeing your business fly, or fail.
Have you considered making a few changes for the better? These few tips could have an immediate impact in helping improve cash flow – and release the stranglehold it has on your business.
Check if they can pay!
As much as you might want to make a sale, if a customer is unable or unlikely to pay on time you have to ask yourself if it’s worth it. Conducting a credit check is a sensible precaution, especially where large sums are concerned. If this leaves you in any doubt as to whether your services will be recompensed, consider the repercussions for your business if payment is not forthcoming and make an informed decision on whether to proceed.
Set out clear payment terms
Make sure it’s crystal clear when payment will be required. This may sound obvious, but not every business includes clear-cut payment terms as part of their ordering and sales process. When dealing with larger businesses, for example, they might expect a 60-day agreement from suppliers. If this is unmanageable from your perspective, make sure this is negotiated before the order form is signed. Get it down in black and white that you expect payment within 14, 30 or 45 days of invoice depending on the agreement made.
Send out invoices – promptly!
Why wait until the end of the month to send an invoice? As soon as a job is completed, finalise the paperwork and pass the invoice for payment. If you complete a job in the first week of a month, waiting until the end of the month to invoice with 30-day terms means you’re effectively offering the client 60 days to pay.
Don’t give a client reason to delay payment. Make sure the invoice is accurate so there will be no need for queries, and send it to the right person, department or place!
Offer a reminder rather than chasing debts
It’s probably not a job you relish, but credit control is a necessary evil when it comes to managing cash flow. Don’t leave it until the due date (or after) to remind clients that their payment is outstanding. A friendly reminder a week before the deadline can often pay dividends, rather than feeling like you’re chasing for overdue debts.
What’s the procedure for non-payment?
As with setting clear payment terms, make sure customers are aware of the procedures and penalties should they fail to pay on time. Are extra charges incurred? Will they face legal proceedings? Make sure these processes are in place and act on them when necessary.
Offer incentives for swift payment
Everyone in business likes to save money. Why not capitalise on that and offer a discount for early payment of your invoice? The benefits of a client paying promptly can far outweigh the small loss you make on offering the reduction. It will also save you the cost and hassle of chasing monies in the long run.
Make it easy to pay
You might prefer all clients to pay you by BACS, but does that suit all of your clients? Ask them how they prefer to pay and do what you can to facilitate that. If their system isn’t in sync with yours, it can mean costly delays in seeing the cash in your account. The easier you make it for them, the better it will be for you.
Do you have to wait for completion?
If client work is leaving you out of pocket, think about creating a payment plan that won’t. Projects that will need investment in resources or materials, for example, might require 50% payment up front to cover costs followed by the remaining 50% on completion. For longer-term projects, it would be advantageous to break down the total into a monthly fee for the lifetime of the project, rather than charging one lump sum at the beginning or the end. Paying little and often can help both parties manage the financial burden of a high-value item better.
Prepare for pinch-points
Is your business seasonal, or suffer from dips in workload at certain times of the year? Planning how to manage the low-points in terms of cash flow is vital if you’re going to survive. Think about how you can still keep orders coming in during these periods, changing marketing tactics to offer promotions, for example. Or, could you diversify to fill the gap? If none of these work for you, you need to find a way of stockpiling the profits in the good times, to see you through the lean.
These are just some of the ways you can prevent lack of cash flow gaining a stranglehold on your business. Most importantly, pro-actively manage the process.
At Get Smart Accountants we work with our clients to drive growth and help them achieve their dreams.
If you’d like some advice or support to get your business moving in the right direction, then we’d love to hear from you.
Call Emma or Paul on 01902 212937