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image of an empty wallet to support article about ways to protect your cashflow - by Towfiqu barbhuiya

10 ways to protect your cashflow

You know the old saying about turnover being vanity etc. The last line is absolutely true – cashflow is king. Cashflow issues kill businesses, so let us look at ways to protect your cashflow and keep your business healthy…

Plan out your cashflow

Without a plan, you run huge risks. You need to look at what cash needs to be coming in and what needs to be outgoing:

  • Fixed costs – rent, rates, etc. These must be covered before anything else can happen.
  • Variable costs – salaries, material costs. Vital, but variable and can be adjusted when needed.
  • Income – what are you expecting in, and what happens if some of it is late?

Your plan will guide you and, combined with your accounts, will tell what is happening and what you can, and cannot, spend.

Manage your invoices, in and out

Send invoices to customers as quickly as possible and start chasing them for payment as soon as they become overdue. Make sure that your clients are aware that you will be charging interest on overdue payments too. For some clients, you may consider offering a discount for fast payments, if they do pay quickly.

For invoices, you must pay, think about this in reverse. Paying your suppliers on time, but as late as their terms allow, both keeps money in your account longer, but also keeps your suppliers on your side. If there are times when you do need to pay late, they will understand and be willing to accept it, if you have a good payment history. If you can pay early, they may also offer you a discount.

Know your customers

Everyone wants more customers, but not ones who do not pay. If you are in the financial services sector, you will know all about KYC (Know Your Customer) procedures, but if not, there are a few basics you should consider:

  • Check their listing on Companies House, looking out for signs that they are not filing or paying.
  • Credit checking services such as CreditSafe and Experian will show you their current credit score.
  • Consider asking for supplier or bank references. Who better to tell you about a customer than someone else they are a customer of?
  • Invoice in advance, especially at the beginning of your relationship with them. If they pay these on time, you can then consider providing credit.

Manage your growth

You want to grow your business but be careful about growing too fast. If your expenses increase dramatically, because of hyper growth, you must be confident that the money is there to pay these expenses. There are commercial finance solutions to help you with this growth (we can help here), but they need to be used wisely and you need to ensure that the money is coming in from your new customers too. Growth oftens means that processes slip.

Maintain consistent marketing & Sales activities

Consistent marketing and sales activity delivers a consistent, and predictable, flow of leads, new customers, and cash. Your marketing and sales costs should be in your cashflow forecast, so they are planned in. If, for whatever reason, your marketing and sales become inconsistent, you risk a feast and famine situation that is not going to be good for anyone.

Feast and famine situations normally occur either because you have had a really good sales period and its all hands to the pump to deliver what has been sold, or you cut marketing/sales activities to protect your cashflow. But these activities are what drive cash into the business, so inconsistency is going to cause more harm than good.

Measure productivity within the business

Make sure everything that is supposed to happen is happening. Productivity is about both processes and people.

Is it possible to improve your processes? Cutting time from each process makes them cheaper and reduces costs for your business.

Make sure everyone is doing what they are supposed to be doing. Its important in every business, but especially so in smaller businesses (where each person is a bigger %age of your workforce) that everyone is pulling their weight and doing what is needed.

Lease when possible, buy when necessary

Keeping your monthly outgoings low protects your cashflow. Moving costs from being Capex to Opex protects your cashflow and keeps your asset value down. Costs such as company vehicles and IT equipment can easily be leased, or financed, so that you have manageable monthly payments instead of tricky lump sums that impact your cashflow situation.

Keep a credit stream available

There may be times when there simply is not enough money in the business for a brief period. Having an agreed overdraft facility, for example, that you can use when needed is far cheaper than going into the red. Being “in the red” may also lead to payments not being made to suppliers and can affect your company credit score.

Invoice financing and other short term finance options are available too. Again, we can help here and would be happy to discuss your needs.

Keep inventory low

Stock is one of the highest costs in any business. It is also static money that is not helping you. It can be a fine balance between keeping enough stock to serve your customers and not having too much, but the lower you can keep your stock levels, the better your cashflow situation will be.

Use high interest accounts

When you have money in the business, make sure it is earning an excellent rate of interest. As they say, every penny counts! With interest rates currently on the increase (some easy access business accounts are paying >2% at the moment), there are opportunities to make a little money here.

Implementing some, or all of these ways to protect your cashflow will mean your business finances will be healthier. Healthy finances mean that you are less likely to need our business recovery or insolvency services. If you are struggling, the sooner you seek advice, the more options are likely to be available to you.  If you would like to talk about your business and its financial health, call us on 020 8662 6070 or click here.