One of the most important aspects of a business is the cash flow and efficient management is crucial to keep it healthy, allowing you to know exactly what is available at any given time.
Without skilful financial management, you won’t know how much is coming into the business and how much is being paid out. Here are some ways to improve cash flow:
Make forecasts
Cash flow forecasts are an important part of financial management. Use realistic estimates to calculate how much income is expected in the next six months, and also how much you expect to pay out during that period. If you estimate a shortfall, you can take action so that you don’t end up with a negative figure. Cash flow projections should be a regular task so that you always have an idea of how much you have on hand at any time. If you have difficulty managing this process, consider outsourcing finance.
Maintain consistency
Don’t ignore your cash flow for months on end. Rather than tackle it when problems have set in, closely monitor it weekly or, at the very least, on a monthly basis. By doing this, you will spot any areas of weakness so that you can take prompt action.
Implement payment terms
Keep a close eye on customer invoices to avoid problems. Unfortunately, some clients will always pay late and others won’t pay at all, which could result in disaster for your company. Issue payment terms that are clear to all clients. Make sure it is stated on the invoice when payment is due, alongside details of any late payment penalties.
At the start of a project or before dealing with a client, make sure that either a contract is signed by both parties or that it is understood what the penalty terms will be for late payments. Rather than issuing invoices by mail, send them by email so that they are delivered as quickly as possible and you know your client has received it.
Be punctual
You also want to make payments to your suppliers in a timely manner, as not paying will affect their cash flow and you could end up with a penalty. Set up direct debits or the electronic transfer of funds so that bills are paid on time. However, don’t pay before the due date, so that you retain your cash as long as possible.
If you have any problems with cash flow, contact us as soon as possible for support and advice.