How to successfully manage your cash flow

Businesses need cash in order to operate successfully. Not only do you want paying from your customers but you will also have bills that you need to pay for products or services received by the business.

Businesses need to manage their cash flow. There should be sufficient cash flowing through the business to allow the business to fulfil its obligations, invest in growth or cope with emergencies. Without sufficient cash flow the business shall come grinding to a halt.

To successfully manage your cash flow you should:

Encourage prompt payment from customers

When entering into business relationships with customers ensure that they are aware of and happy with your payment terms. Where possible don't allow the amount due to build up significantly before invoicing your customer and if appropriate perform financial checks on your customers before engaging with them.

Ask for deposits or stage payments where possible

If the work that you are performing will span a considerable amount of time or involve significant upfront costs then consider asking your customer for a deposit or stage payment. An example of this may be a builder doing an extension for a customer. The builder may have to purchase materials or undertake surveys before the work can commence, which would be reasonable costs to ask the customer to pay for upfront and then the labour costs can be charged at regular intervals as the extension progresses.

Chase outstanding payments

Monitor your customers and their payment habits. Late payments should be chased promptly and regularly to increase the chances of the payment being received. If a payment is overdue cease working for the customer until payment is received. If a customer fails to make payment or to acknowledge you chasing the payment then consider using a lawyer or the small claims court.

Before investing review your cash flow

If you are thinking of investing in new equipment or the expansion of the business consider the current level of cash held by the business plus its future incoming and outgoing cash flows. Using the above example, the builder may wish to invest in a new van however if he spends all his cash and then has a customer that is late paying he may find he's unable to fulfil his financial obligations grinding the business to a halt.

Contact Ashored for help and support with managing your cash flow.