There are many ways of improving Cash Flow for a business and we have given you a few ideas to do just that.
To help you see how these ideas can help your business it would be worth while doing some cash flow projections. The Cash Forecaster can be used as a management tool to identify critical costs areas of the business and how these impact the future cash-health of the business.
For example – you might like to experiment with introducing Factoring or Invoice discounting to improve the flow of cash from your customers whilst you are in expansion mode – Just because a business is making a profit it might still fail if the profits are not turned into cash – Remember ‘Cash is King’ in business!
You may have heard of the term ‘Over Trading’ – Over trading is where a business is making good sales and turnover but that it is not able to keep up with the payments to suppliers simply because their customers are late in paying the company. The obvious way to correct this is to make sure that your payment terms to your suppliers are more generous than those given to your customers. Alternatively, the introduction of Factoring will help.
Having a Cash Flow Management tool to hand will help you to explore the effect these ideas will have on your business:
1. Increase sales and in particular those involving cash payment or payment by either standing order or direct debit.
2. Reduce your direct and indirect costs and overhead expenses.
3. Consider increasing your prices and especially to your slow payers – see Bowraven’s “Profit Increase Software“
4. Review the payment performances of customers and be more selective when granting credit – start using a credit report company to check the credit worthiness of potential customers.
5. Consider up-front deposits or multiple stage payments – approach a loan company to advance the money to you and offer credit terms to customers.
6. Reduce the amount of credit given to customers and change your payments terms – i.e. reduce the time allow for customers to pay.
7. Introduce factoring or invoice discounting to accelerate receipts from sales.
8. Make sure that your sales invoices are raised as soon as the work has been completed.
9. Offer early payment discounts and consider introducing late payment charges or fees.
10. Generate regular reports on receivable ratios and aging or your customer balances and use more pro-active collection techniques – involve your sales team and make sure that any commissions are only paid where customers pay the company.
11. Consider the 80/20 rule with regards to your customer list and product lines – make sure you know where your profits are coming from. You might well find that 80% of your profits are coming from 20% of your customers or 80% of your profits from 20% of your product lines – if either of these are true consider not dealing with the 80% of customers and cancel the 80% of non profitable product lines. Be careful when do this, as it might be that certain products are reliant on others, in which case they may be ‘Loss-Leaders’.
12. Take a look at how you pay your suppliers – ask for extended credit terms. Get new quotes from other suppliers and re-negotiate prices of supplies.
13. Try to reduce your stock levels (inventory levels) and improve control over work-in-progress – make sure that you are billing work in progress on a regular basis and keep write-offs under review.
14. Sell off or return obsolete/excess stock (inventory).
15. Defer or re-stage all capital expenditure.
Planning these changes and which ones work best for your business can be done using our tried and tested Cash Forecaster.
Post by Russell Bowyer