6 ways to better manage cash flow for your business.

Being on top of cash flow can make or break a business. It requires careful planning and regular monitoring.  If there is a cash shortfall, a business may not be able to pay its staff or suppliers and run into serious trouble. Properly managing cash flow means a business can meet its debt obligations, and funds can be directed into fueling the growth of the business. We outline 6 strategies to improve the cash flow in a business.

1. Forecast cashflow

Cash flow forecasting is vital to the health of a business. It involves estimating future sales, other cash inflows, and expenses which gives a clear picture of when cash is coming in and how much is going out every month.

A cash forecast will highlight trends and provide clarity to plan for outcomes, future growth and making informed business decisions.

2. Manage debtors

One of the most important aspects of cash flow management is managing debtors. We list some key strategies that can be implemented to reduce the risk of late payments and bad debts. 

• Issue invoices as soon as work is complete. The sooner an invoice is sent, the sooner a business can expect to receive payment.
• Follow up on overdue accounts. Keep a close eye on what is owed and when. If an invoice becomes overdue, make sure to follow up with the customer straight away.
• Set clear payments terms with customers. Make it clear when and how you expect to be paid.
• Conduct credit checks and set credit limits. Request potential customers to complete a credit application and conduct a credit check.  A credit check is a great strategy to reduce the risk of bad debts. The information received in a credit application can aid a decision on whether to offer credit and how much.
• Make payment easy. Be open to accepting a range of payment options such as credit card, cash, cheque and EFT. Enabling online payments is a great way to encourage prompt payment.
• Payment incentives. Consider payment incentives to encourage early payment or impose penalties for late payment.

3. Manage creditors

Establish a good relationship with vendors and negotiate longer payment terms with suppliers—ideally, a longer payment term than your debtors.

4. Make use of technology

Accounting software can supercharge the management of debtors and creditors.  It makes the process of sending invoices on time straightforward and provides a clear picture of the status of debtors and creditor accounts.

Many accounting software applications will also facilitate linking the invoice with credit card payments, making it simple for customers to pay. Cloud-based accounting enables financial data to be accessed conveniently, so the financial data is always at your fingertips.

5. Have a backup when things don’t quite go to plan

Sometimes despite the best efforts, a business can be caught short.  A business may need access to emergency funds such as an overdraft facility, invoice financing or line of credit with a bank to ensure staff and creditors are paid, and the business remains operating.

These facilities should be established in advance before cash flow shortfalls are experienced, so they are readily accessible when needed.

6. Get professional help

Engaging an accountant or bookkeeper can be a great way to help keep track of the financial health of a business and keep the cash flowing. They can prepare and maintain a cash flow forecast, manage invoices, debtors and creditors, and provide insights into planning for growth.