How to Improve Cash Flow in Your Business

Cash is the lifeblood of any business and needs to be monitored regularly to ensure its survival.

When cash flow is being managed effectively, operations are stable and secure against any unforeseen events, such as an unexpected tax bill from HMRC. Financial Directors can make informed decisions when they are keeping track of the company’s accounts.

This article will explore some useful ways to manage and improve the cash flow in a limited company.

Cashflow Improvement Tips for Finance Directors

Here are 10 tips on how to improve cash flow effectively.

(1) Cash Flow Forecast

The first step to good cash flow management is to understand the flow of money through the business. For that, FDs will need a list of the expected incomings and outgoings of the business over the next 12 months. This is a useful management tool that helps to plan ahead to make sure there are sufficient funds coming in to pay debts as they fall due. A regularly updated cash flow forecast provides FDs with the information to identify peaks and troughs and to make sure that a bank overdraft or a short-term loan has been arranged when cash flow is tight.

(2) Invoice Customers Quickly

When a customer is invoiced has a major impact on cash flow and it’s crucial that customers are invoiced as soon as the work is completed. Emailing the invoice is always faster and provides a record of the invoice being sent.

(3) Establish Clear Payment Terms

Establishing clear payment terms is crucial to know exactly when the business is going to get paid. It’s almost impossible to manage cash flow effectively if no one knows whether a payment is overdue. It’s a good idea to keep credit terms, such as net 30 days and net 60 days to a minimum in a contract. Businesses offering credit lines should always check references to avoid being burdened with non-paying customers and bad debt.

(4) Encourage Customers to Pay Faster

Making payments should be made as easy as possible for customers. The sooner cash is collected, the faster it can be used to meet operational requirements, such as payroll or debt payments. By creating more accessible ways for customers to pay, such as setting up and encouraging online payments, the payment cycle will be shortened and this will improve cash flow.

(5) Put Debt Chasing Procedures in Place

Another tip is that follow-up calls should take place after a certain time period , invoices are reissued a limited number of times and if that fails, a more serious course of action is taken because the longer a debt remains unpaid, the tougher it becomes to collect. Some businesses operate a system of reminders when chasing unpaid invoices. The reminders become more formal and serious as invoices become more overdue.

(6) Use Invoice Factoring

If the business sells to other business and is struggling to maintain cash flow, raising finance on the firm’s outstanding invoices could provide a lifeline to the business. Factoring companies help businesses that are short on working capital by releasing the value locked in the sales ledger by borrowing against the value of unpaid invoices. This can provide a vital shot in the arm for businesses as well as improving credit control as this is handled by the factoring company.

(7) Embrace Technology

It’s easier and faster to manage the company’s cash flow using technology. Cloud-based accounting can save a significant amount of time and allows FDs to keep up to date with the company’s financial position by viewing accounts on a range of devices. It also removes the time and effort involved in backing up data.

(8) Cut costs

Keeping on top of your business’s costs is a continuous process. It might sound overly simplistic, but regularly moving to the best tariffs and deals can lead to savings that soon add up. The threat alone that an energy provider or key supplier could lose your business is usually enough for them to offer a better deal. As a general rule, if you agree to the first price you have been offered, you’re probably paying too much

(9) Streamline the products and services you offer

Many businesses make the mistake of trying to grow too quickly by offering an ever-increasing range of products and services. The more products and services you offer, the higher your costs will be. The core products or services that brought customers to your business in the first place are usually the most profitable. This is where your real expertise lies, so reverting to these core lines can give you a quick cash-flow boost.

(10) Increase your profit margins

Increasing your profit margins is not necessarily all about putting your prices up. The cost cutting exercise outlined in point 1 and the streamlining of your product and service offering will help to improve your profit margins. However, it is also worth carrying out a competitor analysis to see how your prices compare. You could find there’s some room to manoeuvre.

If you are concerned about cash flow and would like advice on strategies that could ease cash flow pressures, please call 07912 344 394 or email [email protected] for confidential and free advice from one of our professional advisors.

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