10 ways to improve your cash flow
Craig Hutcheon, Director at Hutcheon Mearns, outlines 10 ways to improve the cash flow in your business to fund growth as we emerge from the COVID-19 Pandemic.
As an accountant it is drummed into us that ‘Cash is King’ and, having established a number of businesses myself, I have always followed this train of thought, kept money back for a rainy day and ensured that our businesses are in a strong cash position.
Businesses who have survived the pandemic may now need to fund growth to pre pandemic levels over the next 12-24 months and it could prove challenging to draw additional debt.
As an alternative you may be able to improve your cash position by looking at the following ideas to fund short term growth without increasing your debt profile.
As a first step before you consider any of this advice you need to know your cash position.
Maintaining a clear picture of your income and expenditure is Step 1 in the process. You can’t improve what you don’t understand. I’d suggest maintaining a 12 week cashflow forecast with all the incomings and outgoings included. You can then work out where there is flexibility to implement some of the ideas below.
- Speak to your suppliers and ask for extended payment terms
Approach your main suppliers and ask them what they can do to extend payment terms or provide more flexibility. Typically, a 30-day extension should be achievable and providing you make good on your promise to pay on the revised due date the relationship should still be strong. You will be surprised what can be achieved through this simple yet effective measure. Remember, most of your suppliers would rather give you extended terms than a discount!
- Request early payment from customers
In some scenarios it will be worthwhile offering a small discount to your customers if they pay you early or even up front. This should be brought up at the point you engage with the customer as this is the point you are likely to have more success with these tactics.
- Invoice on time
The number of times I’ve seen businesses take weeks and in some cases months to invoice their customers is astounding. Imagine a scenario where you invoice £100k a month plus VAT to your customers, so £120k in total. If it takes you two months to get your invoice out that is £240k you could be spending on growth. Take time to review how long it takes to get your invoices out, review the process and make changes to make this happen quicker.
- Chase your debts
It does what it says on the tin, make sure you have a process in place to chase your customers for payment on the due date and every week thereafter. If you’re customer is experiencing their own cash flow issues you may find that he who shouts loudest and most often gets paid the quickest.
- Build a relationship with the person who is responsible for paying invoices
Building rapport with the individual responsible for setting up the payment runs in a business will help getting paid on time or even before. When you call them give them some chat and get to know them…..not in a stalkerish kind of way though!
- Incentivise sales teams when payment is received
Remember, a sale isn’t a sale until payment is received. Change all bonus and commission payments to be made only on full receipt of payment as opposed to the date Revenue is booked. A simple way to incentivise your sales team to support the credit control function in your business.
- Sell the stuff you don’t need anymore
Check to see if you have any assets that you either don’t use or don’t generate revenue anymore. Even if you sell them for scrap this is a winner and in addition you could save money on storage costs!
- Lease assets instead of buying them
Do you need to pay for each asset purchase in cash? If not, look at financing options. You won’t get interest free credit like you do at John Lewis, but you will be able to generate revenue off the asset before you’ve paid for it.
- Take a look at the available local and national grant schemes
One thing Coronavirus has taught all business owners is that government funding is available. Look at your local and national websites to make sure you take advantage of all schemes that are in place.
- Send invoices electronically
A simple time saver which gives you a time stamp of when you submitted the invoice to the client.
Here at Hutcheon Mearns, our multi-skilled team works with you to solve these complex business problems, identify growth opportunities, and create a plan for the future.
For more information on how we can support your cash flow, contact firstname.lastname@example.org