6 tips for improving cash management in your business

Know your numbers

This is one of our favourite catchphrases. If you have a sound knowledge of the numbers in your business and how they are changing over time, you will always be one step ahead and have the flexibility to react to fluctuations. Cloud accounting software is part of the solution but business owners should also be clear about how to use it, what the numbers mean and what they should be looking for. With the sophisticated online systems now available, there is no excuse for burying your head in the sand. We support all our clients to help them make the most of their cloud accounting software and those who use our FD on Demand service enjoy unlimited support from us to help them improve cash flow, profitability and growth.

Review payment terms to mitigate risk

The easier you can make it for customers to pay you, the faster you will be paid. If you are finding that customers are falling behind or paying late, consider incentives for early payment such as a small percentage discount for payment at the time of ordering. This will automatically improve your cash flow and reduce the amount of time spent on chasing late payments. It is also worth reviewing the payment options you have in place. Do you offer online payments, credit card, BACS and mobile payment facilities? Are your payment and BACS details clearly stated on invoices? Perhaps you could consider changing your payment terms, for example reducing the invoice payment period from 30 to 15 days.

Managing debtors

Following on from the previous point, never be afraid to chase late payments. Make sure you run a report regularly on your debtors and start chasing them as soon as their invoice deadline passes. You may also consider late payment fees if payment is becoming a real issue. Have a rigorous system for chasing up unpaid invoices, using reminder letters and telephone calls and keeping a record of when these were sent and who you spoke to. Set a clear timeframe for escalating unpaid invoices and a process for doing so. Effective debt management will have a significant impact on the cash balance in your business and is an important part of any cash management strategy.

Managing creditors

Conversely to the point above, make sure you try and extend your payment terms on the people you owe money to. If you are subcontracting work, ensure you pay your sub-contractors after you have been paid by the customer.

Re-tendering to secure better deals

Do you outsource or subscribe to any services? From maintenance agreements and insurance to cloud telephony and cleaning, all contracts with suppliers should be reviewed regularly. Re-tender for services to see if you can secure better pricing elsewhere or from your current provider. You may also be paying for services you no longer use, which is another important reason for carrying out regular audits. Take a close look at all your business expenses and ask yourself whether any of these can be reduced or avoided. Don’t be too ruthless though – there are some services that are worth paying for and which enhance your business and support your growth plans.

Loan v cash for asset purchases

When you are buying new equipment for your business, cash can seem like the cheapest way to fund it. On the surface, cash is simple and avoids interest payments. However, the true cost of paying in cash is more complicated to calculate. Using cash to fund equipment purchases reduces your working capital and puts extra pressure on your cash management, creating an even greater need to implement the steps already discussed in this article. Less cash makes your business less liquid and this fact should always been considered when you are weighing up finance terms and interest rates.

If you have found this article interesting you may be interested in reading our article How to create financial resilience in your business.

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