Cashflow is one of the key concerns for most businesses. Good cashflow management can be a major contributor to success and so accurate forecasting is essential. As well as covering day to day costs, your business will need reserves to meet unexpected expenses or temporary shortfalls in income.
The key elements of maintaining a good cashflow are:
Managing the ins and outs
Cash flow is a two way process, covering cash in and out of the business, and both sides need to be managed.
- Know when you are expected to pay
- Pay on time
- Be clear with those you extend credit to regarding your terms
- Protect your credit rating
Managing your Creditors/Debtors
The key thing here is to achieve certainty; knowing when you are going to be paid and then managing your own outgoings in line with this.
- Constantly review your debtors in terms of; who they are, how much credit in total is it safe to extend to each one and for how long to allow them to pay.
- Make it easy for them to pay by offering as many methods as appropriate and/or an incentive for early payment
- Set out your terms very clearly in writing
- Negotiate longer terms with your creditors for your own business than you extend to your debtors, if possible
Managing over reliance on a small set of customers
Businesses that rely on one or two customers or one or two products have an increased exposure in times of economic downturn. It only takes one customer to move to another supplier or to cease trading to put your business at risk.
- Know your customer by checking their status and accounts at Companies House
- Check their credit status by contacting credit reference agencies and checking bank and trade references
- Set clear limits to limit potential for loss
- Consider other protective measures such as credit insurance, invoice financing or discounting
Each bank will have their own processes but samples of each of the following are available on our website (www.betterbusinessfinance.co.uk)
Download the factsheet in PDF format - here.