Almost half of small businesses have cashflow problems.
This is according to new research from Everline, which also found that cashflow issues are restricting growth for nearly a third of firms. Nearly one in five suffers from a shortage of cash at least once a month.
Even as the economy stabilises, cashflow remains a prominent concern for many small business owners. So how can you ensure that your own cashflow remains smooth?
Improve your credit control
In many industries it is expected that suppliers will provide credit to customers. However, by doing so you put yourself at risk of late payment, which remains one of the most common cashflow prolems.
Before you extend credit, it is important that you do the relevant checks. You can run credit referencing checks with any of the major referencing agencies, and this will help to paint a picture of your client’s capacity to pay. You will also get a better idea of their payment history, enabling you to make a more informed decision.
Your invoicing practices are amongst the most important factors affecting your cashflow. You cannot hope to get paid on time unless you invoice in a timely manner, and provide your customers and clients with all the information they need in order to pay you.
To begin with, make sure that you invoice at the earliest possible opportunity. When you send your invoice, make sure that it includes all of the relevant payment information, remembering that you may need to include SWIFT and IBAN codes for international payments. You may also wish to include this information on separate communications with your clients.
You should then consider sending a reminder shortly before the invoice becomes due, and then immediately at the point that it is eventually due for payment. If payment is late, get in touch early and often, remembering that a phone call can often be a more effective method of chasing payment.
It is also important to note that you may be able to automate much of your invoice chasing process. Check with your bookkeeping software provider to see if this is possible with your current software.
Consider invoice finance
Finally, you might consider using invoice finance as a means by which you can improve your cashflow. This alternative finance method involves borrowing against the value of your outstanding invoices – but, crucially, it means that you can get paid within as little as 24 hours.
Under an invoice finance arrangement you raise an invoice in the usual way. You then pass your invoice on to a third party invoice finance company, who will pay you the face value of the invoice less an administration fee. Then, depending on your arrangement, you will then either chase up payment yourself, or the invoice finance company will do so for you.
Invoice finance can be a highly efficient way in which to smooth over your cashflow issues, and is a growing form of alternative finance.