16-01-2008
Cash flow tips for the beleaguered business
By Rosie Beasley
Do you regularly put off monitoring your cash flow in favour of other less stressful tasks? With small business owners facing not only the effects of the credit crunch, a floundering stock market and the repercussions of the April budget report, but also a dip in consumer confidence, it would be tempting to bury your head in the sand. But if ever there was a great time to take control of your finances and your cash flow – this would be it.
Robin Gaines, a senior consultant at invoice finance brokers Simply Business, suggests that actually, the early months in the year are the ideal time to think about cash flow. “Smart business owners use this time of year to take stock of their financial situation and look for solutions to improve their cash flow for. Depending on the reason for cash flow problems, there is usually a solution to suit. Since the New Year, we have helped many businesses set up a factoring facility, which gives them immediate access to money which would otherwise be tied up by debtors.”
Managing late payments
Almost all businesses which offer clients credit terms and rely on invoice payments for revenue have to deal with the consequences of late payments. This is especially true when the clients are large companies with complex financial structures, and is often the cause of a business’s cash flow problems.
If customer payments are regularly coming in late, it may be time for a review of your credit terms:
• Talk through any issues with each of your customers in person
• If they are unable to pay within the existing timescale, agree on a new credit period
• Exercise your right to charge interest on late payments
• Outsource your sales ledger
According to Robin Gaines, many businesses try the direct approach with little success. “Sometimes talking with your customers doesn’t make much of a difference, even if they have good intentions. This is when you can look at outsourcing your sales ledger. A factoring facility enables you to get the cash owed from your invoices, without the stress of chasing clients for payment.”
Managing your cash flow
Cash flow management is one of the most important aspects of running a business. Do it badly and you could be one out of the 60% of businesses that fails in its first three years. Do it well and you’ll have a solid foundation on which to build and grow.
There are several ways you can better manage your cash flow:
• Be aware of your sales cycle – if you know when money is coming in, you can make provision to cover money going out
• Update your cash flow forecast regularly and use it as a guide
• Keep close control of your debts
• Choose a long term cash flow solution, such as invoice finance
Invoice finance can help you manage your cash flow because the facility advances you payment against your invoices within a very short time. If you know when you will have money coming in, it is then easier to balance your revenue with your outgoing costs.
To bridge a gap in the shorter term, many businesses take out an overdraft with their bank. This is a good option if you know you will have the money coming in to cover the debt within a certain time period. Otherwise relying on an overdraft for funding can be very risky.
If all else fails, get insurance
There are times when you manage your cash flow perfectly, but then fate steps in to shake things up. When you least expect it your van could be stolen, your business premises rendered inhabitable or you yourself could be out of action for a while.
In these cases it is wise to have insurance, because even when you have no income there will still be bills to pay.
Business interruption cover could help in these situations by bridging the gap until your business is up and running again.
It is available as a bolt-on cover along with your regular business insurance policy. If you are soon to be renewing your insurance, make sure you research your options and shop around for quotes. It may seem easier to stick with your current insurance provider, but you could be missing out on a better policy for smaller premiums!
So with all your business affairs in order you’ll find you have plenty of time to plan your holidays, secure in the knowledge that your business will have a strong financial foundation to build on in these uncertain times.
