Let’s be clear about one thing upfront – effective cash flow management is not an area where you should be cutting corners, as it’s at the very heart of why you are in business in the first place.
However, that being said, there are some techniques to help improve your cash flow management, which many people in business are not aware of.
You might associate some of the tips below with big brands, and think that they are out of reach for SMEs, but in principle there is no reason why anybody couldn’t introduce any of these policies into their business.
First up, consider action to encourage prompter payments from new and existing customers, as this is perhaps the most direct way to improve cash flow.
Prompt payments reduce your trade debt – the value of your outstanding and overdue invoices – and are a crucial way to protect your company’s finances, so don’t be afraid to take action here.
Techniques range from offering small prompt payment incentives, such as a small percentage discount on customers’ bills, to taking swift enforcement action on overdue payments, to discourage clients’ poor payment practices.
Ts & Cs
Even the smallest businesses – yes, even sole traders – should have payment terms and conditions in place, setting out invoice deadlines in no uncertain terms.
Once customers have agreed to these, you are protected against non-payment, making it easier to take enforcement action without any arguments.
Although we tend to focus on income when talking about cash flow, your expenses are the other side of the same coin.
Negotiate acceptable payment terms with your own suppliers, and make use of any credit you are offered if you are confident about being able to repay it.
Just remember to treat suppliers fairly – the business equivalent of ‘do unto others as you would have them do to you’.
Don’t expect unreasonable payment terms, and settle your invoices promptly; doing so effectively removes a portion of your company’s debt risk, and can avoid incurring further costs and interest later, so it is good business practice to do so.