Tips to Help Improve Your Cashflow and Business Financial Management
As economies around the world continue to improve very slowly, cashflow is still a key concern for businesses. Here are some free tips on how you can improve your business cashflow.
Review Your Payment Terms
Do you sell products and services to clients on credit accounts? One of the easiest ways to improve cashflow is to shorten those credit terms to new and existing clients. For example instead of offering thirty day payment terms, offer a small discount if the invoice is paid within fourteen days. Small discounts are a great way of getting cash conscious clients to pay earlier, they love discounts.
Review Your Collections Process
One of the biggest problems with SME businesses is their lack of a formal collections process and the discipline to use it. Define your collections process, document it, implement and stick to it. The biggest problem we see is businesses who don't stick to it. It doesn't have to be complicated but it does have to be uniform and consistent.
Review Your Invoicing
Depending on the products and services you sell you may be able to invoice sooner and more often. When negotiating deals or contracts negotiate with your client to invoice up front with payment required before release of goods. Always invoice large projects progressively. If you are a service business, don't commence work until a deposit has been paid. Businesses expect this so don't think you are doing anything unusual by implementing this. Always, always invoice as soon as you can, don't wait until month end, do it now.
Debtor Financing Facilties
Whilst this doesn't suit some businesses, high street banks can and do lend based on your receivables ledger. That is they will lend you the money tonight for those invoices you sent today to your clients who normally take 30-60 days to pay. You could receive as much as 80% tonight and the final 20% in 30 days. There are conditions and minimum thresholds to make this viable and it is not something that should be entered into lightly. Seek professional advice from your accountant before considering this option.
Pay Bills as Late as Possible
The reverse of the previous point. Suppliers will give you credit terms and you should take full advantage of this. Always try to pay your bills on the very last date they are due. Some companies you can pay even later, the key thing is to communicate with those companies to ensure they are aaware, they might not be happy about the late payment but they will be ok if you keep in touch with them.
Pay Little and Often
Most standard bills come monthly or quarterly. However for a lot of businesses even these amounts can be large chunky bills placing stress on your cashflow. If this is the case for you set up small weekly direct debits for things like your phone bills or your power bill. Then when the big bill arrives it should have been mostly covered by the payments you have already made. Don't do this for all bills, but we do suggest that any bills not directly related to what you sell could be paid by this method.
Keep a Safety Buffer
If the previous idea of little and often doesn't appeal to you, then set up a fee free savings account and divert money into this each week. That way when those larger bills arrive you will have a buffer set aside to take the pain out paying these. Again it is all about discipline but once it is set up it is amazing how easy this is to do.
Keep Your Bookkeeping Up To Date
This is crucial so you can keep tabs on your cashflow forecasting. It takes very little effort to keep your books up to date, if you don't like doing it get someone who does. It is the first and most important point in managing your cashflow.
Maintain a Cashflow Forecast
An easy to do but frequently overlooked tool. Again, if you don't like it get someone else to do it for you. It is easy and can take so much of the stress away from the day to day running of the business. At Avegna we assist our clients with this task, once set up it takes as little as thirty minutes a week to do this and take away some of this stress. Please feel free to contact us for a copy of our free daily cashflow forecast template.
Avegna assist businesses with these and other aspects of managing business finances. For further information on how we might help you and your business please contact us on 1300 797 535 free call from landline in Australia.
Kind Regards
Scott Lyall
CEO of Avegna
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