Cash flow is vital to your small business as it’s the single biggest reason for business failure. It can be a fantastic, profitable business but without cash flow the business will suffer. Failure to pay staff, suppliers or HMRC on time, can have consequences and can ultimately lead to winding up proceedings being issued on the company.
Many business owners do not pay enough attention to the cash requirements of their business and how to improve this.
There are 5 simple ways to improve your small business cash flow:
1. Invoicing not completed on a timely basis
If you haven’t sent the invoice you can’t receive the money, simple as that! So by making sure that all invoices are sent on time then you will automatically improve your cash flow. Don’t leave them to the end of the month, if the work has been completed or the goods have been shipped then make sure the invoice is sent. This helps in other ways too, if there is a dispute on an invoice it’s much easier to resolve if it’s fresh in your mind.
2. Lengthy payment terms
How long do you give your clients to settle your invoice? You can decide what payment terms are appropriate to your business and shorten them where possible. If you’ve completed a service then it is quite acceptable to extend 14 day terms, not 30 days and this means the money should be in your account sooner.
3. Offer settlement discounts
In situations where shortening the payment terms isn’t possible then it may be possible to offer a small discount for those clients that can pay sooner.
4. Inadequate credit control
How often do you review your debtors list and contact late payers? This should be carried out regularly. Where possible, I would advocate a system where the invoice is followed up with a brief call to check the client has received the invoice, a monthly statement of account and a telephone call if the invoice has exceeded the payment terms.
5. Lack of follow-up
What do you do if your client still doesn’t pay? Make sure you follow-up and have clear procedures in place for when a client doesn’t pay. If the statement, phone call and emails are not yielding payment, then make sure you have a 7 day letter to send. Then if they still don’t pay, it is time to issue a county court summons. Depending on the value of the debt this can all be done online, it’s quick, easy and cost effective. The claims process is outlined here.
If you are currently experiencing cash flow issues and would like a Business Review and some advice of how you can improve this in your small business, do contact us. We can help.