Improving cashflow

It’s important that you know and understand the flow of money through your business – both when it’s due in, and from what sources, and when it's due out. One of the better ways to see this flow is by taking the time to create a detailed forecast for your business.

Once you’ve done this, keep your forecast aligned with your actual figures at the end of each month. And, if necessary, re-forecast. Completing these checks regularly can help you spot issues in advance, identify inefficiencies, or see something that was overlooked in the first place - and ideally give you time to take relevant action. On the other hand, if things are working better than planned, you could decide how to best use, invest, or save your increased profits.

Read more on cashflow forecasting.

There may be periods when it takes longer for money to come in than planned. On a small scale, this can be manageable, but if you’re encountering problems with receiving payments regularly on a larger scale, you may want to consider taking action to help speed things up.

If you’re not getting paid on time, it might be wise to rethink the terms of payment you’re giving your customers. Some simple means of doing this are:

• Shortening your payment terms. e.g. from 30 days to 14.
• Including ‘Due Upon Receipt’ on your invoices (instead of ‘Payment Due Within 30 Days', for example).
• Depending on your customer/industry, request part of the payment before you carry out any work or deliver anything.

Some accounting software can automatically send out invoices for both regular or ad-hoc payments, as soon as they’re due, and prompt customers automatically if a payment is overdue¹.

If expenses are also to be charged on top of your usual invoices, you could speed up the process by attaching digital copies of the receipts along with the bill¹.

If it’s appropriate to your type of business, consider providing a function that allows your customers to pay you securely online. By offering this convenience, you could increase sales, and, in turn improve cashflow, by cutting out the lengthy delay involved with sending out invoices and waiting for payment to be received.

Having a line of credit available, such as a business loan, overdraft or credit card, could help you prepare for the unexpected and boost your cashflow when it’s critical. For example, a customer could be late paying a large bill, or perhaps you need extra cash to fulfil an unexpectedly large order. However, you'll need to consider different types of credit that are available, as some are relatively expensive and not appropriate for long term borrowing e.g. credit cards.

Depending on the nature of your business, it may be wise to check who you’re doing business with before delivering goods or providing services without securing payment up front. If you’re concerned over customers defaulting on payments, there are some proactive measures you can take to minimise this risk.

Use business credit checking agencies: For large orders, it may be worth paying for a credit report on the customer, so that you have a good idea of how safe it is to do business with them. You can do this through:

• Experian
• Equifax
• Creditsafe
• TransUnion

Consumer credit reports: If you’re working with a small business, run by a sole owner, checking his or her personal credit rating could give you an insight to how likely the business is likely to pay promptly. The three main agencies for consumer credit reports are Experian, Equifax and TransUnion.

As well as the name of the person placing an order with you, it’s useful to get the name, phone number and email address of the person in the accounts department who will be responsible for paying you. That way you can chase up payment more effectively.

Shop around for the best deals on everything you buy and don’t rely on one supplier just because it’s convenient. Check out comparison sites to ensure that your business is getting a competitive deal on the energy it uses.