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With businesses having to contend with falling sales, distressed customers and disappearing credit, the old adage that ‘cash is king’ has never been truer. But why so some businesses always have cash in the bank whilst some always operate in their overdraft?
Here are four key tips that should be followed to keep your cash flow flowing.
1. Forecast first
The first, and most important, step is the cash flow forecast. There’s no need to do one for a whole year, a 13-week cash flow forecast updated regularly is good enough.
2. Collect clever
It’s important to double check invoices are being sent out promptly. Take a look at your disputes policy, escalate all disputes to senior decision makers who can resolve them quickly and get the cash in. Think about cash-up-front discounts, too. If the forecast is showing things getting tight a couple of months out, it might be worth sacrificing a bit of margin to speed up payment.
3. Proactive payments
Cash flows from customers and to suppliers need to be managed proactively. That means communicating with your suppliers, especially at times when credit is being withdrawn or order books are looking temporarily lightweight. Also take advantage of prompt payment discounts where possible.
4. Reduce your costs
It’s important to check ALL your utility bills and if you are not in contract shop around, take out half your light bulbs and replace them with more energy efficient bulbs, re-negotiate your overdraft with your bank and finally, measure and test your marketing so you don’t waste money on promotions that don’t work.
5. OK, so I know I said four key tips but here’s an extra one…
Cash flow is something the whole business needs to understand, and efficient processes throughout your organisation are crucial. Tight processes, firm discipline and sure-footed planning are what good financial management and cash flow is built on. |
