SME's guide to protecting your cash flow
You’ll have heard the saying: “Turnover is vanity, but profit is sanity. But cash is king.”
It doesn’t matter how much you’re turning over, or how profitable a project is, without cash flow nothing else matters. You can do everything right, but forget to protect your cash flow, and see yourself suffer.
In this guide, we explain the best ways to manage your cash flow, using your credit control. Whilst it’s great that your customers like you, and that you’re able to offer them friendly terms when it comes to credit, make sure your business isn’t suffering because of extended credit terms. More and more businesses are leaning on payment terms to protect their own working capital – it’s a vicious cycle that is impacting millions of businesses across the UK.
Make sure you set upper and minimum credit levels for your customers. Don’t allow credit to everyone you supply to just because they ask – it’s nothing to be embarrassed about, it just protects you should anything happen.
Conversely, if you’ve set an upper credit limit for a client, don’t be afraid to tell them they’ve reached it. If the amount of credit you’ve granted them could significantly damage your business should they not pay, make sure you protect yourself.
Many businesses will email to check you’re happy with the goods, and that everything has been delivered successfully. “That’s nice”, is the first impression, however for many businesses it allows them to confirm that you’ve got the goods and now it’s time to get the invoice out. It’s a win, win.
Get to know your customers
If they only pay suppliers on the first day of the month, make sure your invoice is in before the date to increase the chance of receiving payment. A simple admin error could see your invoice being sent on the 2nd, only to be put to the bottom of next month’s invoices. By understanding when you should expect payment, you’ll be able to more accurately forecast your cash flow.
Get your house in order
As alluded to in the point above – make sure you have a process for your invoicing, and abide by it. The sooner you invoice, the sooner you’ll get paid. If you’re a customer to your suppliers, make sure you’re on an even keel – if you’re chasing payment from them quickly, make sure you don’t upset the relationship by sitting on their invoices. You aren’t going to be the top of their list if you didn’t pay promptly.
Automate your credit control
If you’ve not got the in-house resource to chase up customers, review the latest technology solutions which automate the process – many of the providers claim to be significantly reducing debtor days for businesses.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.