Managing the cash flow crunch
A quarter of Britain’s small and medium-sized firms regard the state of the economy as their biggest current concern, and nearly a third describe the present situation as a fully blown recession, according to a new poll by the Orange SMS Business Jury. Overhead costs (23%) and fuel costs (17%) are the other major concerns, suggesting that businesses are increasingly worried about the need to economise.
Keeping a strong and steady cash flow through a business is critical at all times, but particularly during periods of market uncertainty. Here is a checklist of some basics to help you improve your everyday cash flow:
Get paid more quickly – Ask your customers to pay sooner or ask for full/part payment in advance. You could also offer a discount if they pay by an agreed date.
Avoid late payments and non-payments – Agree payment terms in writing and set them out clearly on all invoices. Issue invoices promptly and carry out credit checks on potential customers. Consider including a retention of title clause in your contracts for the sale of goods.
Be alert to customers changing their behaviour – If customers start post-dating cheques or become difficult to get hold of, they could be struggling with cash flow.
Chase debts – Be prompt and systematic in chasing debts and be firm when you ask for payment.
Seek extended credit terms – If you are in a strong negotiating position, ask your suppliers to give you extended credit terms.
Consider factoring – Debt factoring may be one way of getting cash into your business quickly. This involves selling your invoices to a debt factoring company against which you can draw loans.
Once you have this structure in place, you can use cash flow forecasting to identify problems, avoid cash crises and help make important business decisions.