Managing your cash flow

Keep on top of your cash flow

Cash flow is vital to the health of any business, otherwise, it’s unlikely to prosper without enough cash to meet immediate and future needs. Therefore, understanding your cash flow should be a key priority to clearly see the amount you owe, what you’re owed from customers and how much money you have in the bank.

With a healthy cash flow, your business will be in a better position to help you grow, launch new products or services, pay wages, and take advantage of supplier discounts. There are a number of accounting tools you can use to help you, such as Xero, Quickbooks and Wave.

Improving cash management

By focusing on your cash flow management you’ll be in better position to manage your costs, reduce financial and operational risk and improve operational efficiency. Good cash flow management means you’ll need to review business and financial information on a regular basis by looking at:

• The creditworthiness of your customers
• The payment patterns of your customers
• The level of receipts outstanding
• The payment terms provided by your suppliers
• What short-term demands you have on cash and any surpluses
• The position of your debt capacity

Making your credit control effective

Effective credit control is important to running a successful business and putting in place proper procedures can help to ensure that customers are paying on time and flag early indications of potential bad debts. The recovery of business debt can be time consuming, so the key to getting paid on time is having an effective credit management policy.

To make sure your credit control is effective, you can put in place some simple processes:

• To avoid surprises later, put in place a purchase order system
• Send invoices to customers on time and to the right person
• Clearly highlight your payment terms on invoices
• At the outset, do a credit check on customers and set appropriate credit limits
• Where possible, ask for payments in advance
• If an account becomes overdue, get in touch by email, letter and in person to chase for payments
• If, after a further 30 days your payment is still outstanding, decide if you should put further work on hold until the payment has been received
• Each month, regularly check your debtor days

Finance to improve your cash flow

There is also the option to use a cash flow finance specialist, who will be able to provide a more flexible source of funding that matches your business requirements:

• Factoring: where you combine funding and credit control
• Confidential Factoring: where your funding and credit control service is confidential
• Invoice Discounting: where you access funding only and not a credit control service