Without knowing how cashflow works within your business, you could be ignoring what is a crucial part of running your company.
Our corporate partner Intuit QuickBooks are a leading accounting software provider, and they have given their top 10 tips on how you can improve your cashflow whilst growing your business.
1. Do an honest audit
Before you can attempt to improve cashflow, you need to understand where you are with your current cash status. Look at accounts payable (money your business owes to suppliers) and receivable (money your business is owed from sales), credit conditions and stock. At this stage it’s essential that you keep an eye for any imbalance between cash leaving and entering your business.
2. Invoice customers properly
Obvious, but crucial. Customers pay quicker if you invoice them as soon as you can. Try and stay on top of this; you’d be surprised how many businesses are behind with invoicing.
3. Make it simple for people to pay you
Bank transfers are universally preferred, but include cash, debit and credit card payments. Make sure each invoice has a due date.
4. Pay attention to payments
If you know when you’re likely to be paid, it makes it so much easier to manage payroll and accounts payable. Everyone who pays you will have their own patterns, so start learning them and you can anticipate when you might get paid.
5. Offer incentives for earlier payment
You’d be amazed how quickly payment happens if you take, say, 5% off your fee should they pay you before a certain date. You can now start predicting how cashflow operates in your business.
6. Create a credit policy – and stick to it!
Once you understand your cashflow, you might be in a position to extend credit to your most loyal customers, enabling you to invoice sooner and accurately predict payment dates.
7. Don’t forget your collections policy
Helping you to treat all customers fairly, you’ll be able to query overdue invoices sooner. The policy should become more formal the longer payments remain outstanding, and of course, debt collection agencies can help.
8. When do you owe money?
A simple rule of thumb is to pay invoices in the day they’re due. You’d think paying earlier would be better, but this can leave you low on cash at potentially crucial moments.
9. Extend your payment times
If you have a good relationship with your suppliers, it might be worth asking them if you can spread payments or extend due dates. It’s easier to do this if you have worked with them for a long time.
10. Manage your stock
Ensure you have a firm grasp on the daily sales and you know what your best sellers are, and plan accordingly.
Hopefully, these 10 tips have helped show you what you need to consider when attempting to effectively run cash flow in your small business.
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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.