Top five ways to manage cash flow

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Although many view profit as the most important aspect of a business, a healthy cash flow is crucial for the success of an enterprise. If you have problems with cash flow, you will have difficulty paying your workforce and suppliers, and meeting other demands on the company reserves.

Here are five ways to maintain a healthy financial position:

Credit control

If your customers don’t pay their invoices in a timely manner, you may struggle to pay your suppliers, which could lead to difficulty. Not receiving prompt payment from customers is viewed as one of the biggest obstacles to success by many companies and their accountants.

A procedure should be put in place to collect outstanding invoices before the debt causes problems for the firm. If you give clients 30 days to pay an invoice, make sure someone is chasing up the payment on day 31. Reduce the number of days for payment, possibly even asking for it within seven days. Offer a discount to those who pay for goods on delivery, to encourage customers to pay upfront.

Monitor costs and spread payments

Reduce costs where possible and pay for items over an agreed period rather than paying a lump sum. If you can lease equipment rather than buying outright, consider this as an option. If your supplier offers a payment scheme, apply for this rather than making a cash payment, as it will have less of an impact on your cash flow.

Payment terms and conditions

Set out clear payment conditions for customers so that they know when payment is due and what penalties are in place. Check a customer’s credit history before supplying goods on credit terms, so that you maximise the chances of prompt payment.

Debt collection

Outsource the collection of debts to an agency. If you outsource accountancy, you will be able to leave the collection of outstanding invoices to them. Only consider a third party if you have significant debts outstanding, but rather than leaving your cash tied up in outstanding invoices, contact a collection agency.

Seasonal problems

If you have seasonal demands for goods or services, make sure you have another stream of income to tide you over the months where demand is low. Rather than struggle with fluctuating cash flow levels during quiet months, diversify.

If you would like to know more about creating a healthy cash flow, contact us today for more information.