Want to become a cash flow pro and keep your company’s finances moving in the right direction? Having a healthy cash flow is vital for any small business. Cash is king when it comes to succeeding in the business world and can represent the difference between success or failure.
The way to get a healthy cash flow relies heavily on the word ‘flow’ and revolves around a cycle. Businesses need to carefully balance the amount of funds coming in and the amount of funds going out. The golden rule is to have more money coming in that going out.
This may sound simple but cash flow is one of the biggest challenges for small businesses, where 17% of payments to small and medium-sized enterprises (SMEs) in the UK are late, according to Sage research.
To add to this, SMEs in the UK spend on average 15 days a year on chasing late payments each year.
Presented with these challenges, it’s not surprising that so many businesses struggle to get a healthy cash flow. Here are a few tips that could save your business in the future and turn you in to a cash flow pro.
1. Know your customer
Knowing who your customers are, what they are interested in and why they are buying from you is the first step to understanding where your funds are coming from and how you can use them to invest in your business.
Learning what funds your customer has coming in and out each month and when their payments are due is also helpful. This is a neat trick to avoid late payments by arranging payment dates that will best suit you as well as your customers and suppliers.
The Art of Being Paid
Chasing invoice payments doesn’t have to be painful. Use this kit to answer a few questions about your customers so you understand their payment drivers, then read our advice on how to flex your style for each, calling techniques and much more.
2. Prepare for the worst, hope for the best
In an ideal world, your business will run smoothly. However, there are likely to be times when unexpected issues occur. To prepare for these times, make sure your clients and suppliers know they can trust you to ensure their investments are in good hands.
Having credit insurance in place is important, as insurance companies and brokers will offer tailored credit insurance to help you when customers miss payments.
By knowing specific details about your customers, you can assess whether they are likely to fail and if they are a risk to your cash flow. Don’t let your customers’ failures lead to yours.
3. Know your payment dates
Knowing your payment schedule is key. It’s important to agree terms in advance with companies you are reliant on. Simple tips such as making payment dates clear in invoices and having a written and signed payment contract are essential to ensuring all parties involved understand the payment schedule.
4. Treat your suppliers right
Treat your suppliers how you would like to be treated. Suppliers will experience the same effects of late payments as you, so ensure you pay them on time.
Late payments can damage your relationship and could bring a partnership to an end.
To avoid this, ensure your payments are on time and in full to maintain a happy working relationship. Being known as a business to rely on will help you in the future and could even lead to better price negotiations and priority on your orders.