Reviewed by: Mike Smith on 29 August 2018

Tips on Better Cash Flow Management for Finance Directors

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 incomings and outgoings. It gives them more control and avoids knee-jerk responses when something unexpected hits the business.

Here are some tips on how to manage cash flow effectively.

Cashflow Management Tips for Finance DirectorsCash 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.

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.

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.

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.

Debt Chasing Procedures

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.

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.

Use 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.

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 for confidential and free advice from one of our professional advisors.

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