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Is your cash flow ‘flowing’ efficiently?

Most people know that cash flow is the life support of any business and that more firms go bust because of cash flow than anything else.

Recent figures show that in the April to June quarter of 2013 there were 3,978 compulsory liquidations and creditors’ voluntary liquidations in England and Wales, which was a 10.5% increase on the first quarter of 2013.

As the figures show, it is more important than ever to be continuously looking at ways to improve the efficiency of your business to ensure longevity in the current market place and the best place to start, in my opinion, is to make sure the management of your cash flow is as effective as possible.

These ‘Dos and Don’ts’ will help to speed up the process of getting paid to get your cash flowing a lot more efficiently:

DO set your own payment terms to suit your business needs, just ensure they are well communicated to your clients before you start working with them to avoid any disputes.  Make sure your payment terms are clear on invoices, for example ‘payment required within 7 days’ or ‘payment required on receipt of invoice’.

DO encourage direct payments by displaying your bank account details clearly on all invoices to make it as easy as possible for customers to pay you.

DON’T give any customer more credit than you could afford to lose if the sale turned into a bad debt.  Using credit scoring systems is a good way to help you set appropriate credit limits for customers and get into the habit of credit checking all new customers without fail.

DON’T carry out additional work or let goods go to a client until payment for previous work has been received, or at least new payment terms have been agreed.

DON’T wait until month end to send out invoices. If you get into the habit of sending invoices out as soon as you have finished the job, you will receive your cash a lot quicker.  Also try sending your invoices by email as they will be received much faster than a posted invoice and people tend to respond to their emails more promptly as a rule.

DO send regular statements and ensure the customer understands your point of view. Explain that you invoiced 30 days ago, the amount is now overdue and you expect to get paid by the end of the week.  Stay calm and polite but don’t be a walkover.  Some customers will put you at the bottom of the pile if they think they can get away with it.

DO stay on good terms with your bank or other lenders in case you need to extend credit levels or apply for further finance.

DO without fail, obtain references before you start trading with a new customer. You should always check the reference to let your customer know you’re serious about credit.

For more cash flow advice please view our latest video here.