It is important that businesses take responsibility for ensuring that their own cash management processes are robust and as efficient as possible. Listed below are our top tips for cash flow management:
1) Use a cash flow forecast
All businesses should have a cash flow forecast that is regularly updated. It does not need to be complex, but should accurately reflect when payments are due to be received and made. The forecast will give early warning of any potential problems, and can also be used to check for vulnerabilities, e.g. if a very significant payment from a customer arrives late, what are the potential consequences? There are more potential solutions to a future problem than one you are already in the middle of. Also remember that it is not just poorly performing businesses that are susceptible to cash flow problems. Businesses that are growing rapidly can also run out of cash, and if the forecast has been abandoned because of pressure of work, it can materialise as a very unpleasant shock!
2) Invoice promptly
Any delay in issuing an invoice is a delay in receipt of payment. Ensure invoicing is treated as a priority and all invoices are raised on schedule
3) Invoice accurately
Invoice errors inevitably build delay into the payment process, so time spent eliminating potential errors is a sound investment. Check:
- Invoices are being sent to the correct address (postal or digital)
- Authorisation or order numbers are included and correct
- Item descriptions are clear and consistent with order detail
- Pricing is correct and as agreed
- Payment terms are clearly stated
- Bank details are provided to encourage direct payment
4) Chase up overdue invoices
Ensure that customers are contacted to enquire about payment as soon as agreed terms are exceeded. Account’s department staff are aware of which suppliers enforce payment terms and will often prioritise those payments to avoid the phone call. Be polite but firm to ensure you find out the reason for the delay and when payment will be received. Keep notes on the outcome of calls, and make a diary note for any follow up action.
5) Use the digital route whenever possible
Sending invoices electronically and encouraging payment directly into your bank account reduces time delays and saves cost.
6) Consider offering discounts for early payment
Some customers may be willing to settle invoices early in exchange for a small discount
7) Make use of credit terms from suppliers
If suppliers provide credit terms on their invoices ensure they are used – but not abused!
If you need help with cash management in your business, contact CMC using the form below.