How to Solve Cash Flow Problems
Updated: Apr 29, 2022
Everything flows from cash flow, and as a leader of a business, especially a small business, your main role, almost your only role, is to ensure the positive cash flow of the business.
There’s really no point in getting everything else right if you just go and cock up the cash flow.
Coming up are 10 great tips to minimise the adverse impact on your cash flow.
The quicker you can get an invoice to your customer, the better. Many online accounting systems like Xero, Freeagent or Quickbooks allow you to generate invoices on the fly and email them by PDF.
Remember: The quicker the invoice reaches the client, the quicker you’ll get paid, and don’t forget to add a link to your payment methods.
Make it easier for customers to pay
Offer as many payment methods as possible: cash, cheque, bank transfer, direct debit, credit cards. Oftentimes, you don’t even need to set up a merchant services account. Apps such as Square (squareup.com) and Stripe (stripe.com) can have you accepting card payments online in matter of minutes, and GoCardless (gocardless.com) allows you to accept Direct Debits, not forgetting PayPal as well.
If there’s one thing that’s certain, if you make a mistake on an invoice, it will not be paid. Remember that your customer is also more than likely working within serious cash flow constraints and will be looking for reasons to not to pay until they absolutely have to.
If you make a mistake on your invoice you can guarantee that this will give them an excuse not to pay.
Don’t give them that excuse: make sure your invoices are correct.
Offer early settlement discounts
If you have the margins, and if you can afford it, offer discounts for early settlement. But you need to make it worthwhile. 10% is about the minimum that’s likely to make any odds.
Take up credit references
While not exactly fool proof credit checking can help avoid bad debts. There’s no point in adding to this month’s bottom line with a sales invoice that’s going to come straight off next month’s.
Experian and Equifax are a good start but also look at Creditsafe. You can also DIY by asking potential customers to provide references from other suppliers and their banks.
Ask for partial (or total) up front payment
There’s no shame in asking for upfront payment.
If you’re embarrassed to ask, then you need to find a way through that because it is an essential task.
Remember, big business were once small, established businesses were once start-ups.
They all appreciate the pain of early stage cash flow and might be quite happy to help you out a little.
But be prepared for a little quid-pro-quo. Upfront payment might merit a discount or an improved delivery schedule.
Minimise Overhead Expenses
It is so important for any small business to keep a tight control over the overheads, the question to ask is “Do I really Need this?”
Ensure that unnecessary costs are kept to a minimum, but take care not to reduce costs that are effectively an investment in the future, including Marketing and Advertising.
Only pay bills when you have to
While you want to bring payments in as quickly as possible, work with your suppliers and vendors to get the best deal you can and maximise the benefits of the terms on offer.
But always remember that your suppliers need their invoices paying as much as you need yours paying, so while you should maximise the benefit of the terms, don’t push it and use suppliers as a free bank loan, it really is the quickest way to sour relationships.
Set up pay monthly/subscription arrangements
Quite often your business cycle may be seasonal, so why not offer some of your customers the chance to even out their payments by agreeing a monthly subscription payment.
This will benefit your customer so they can spread the cost of your service throughout the year, instead of having to find a large sum all at once, it will also ensure you have regular cash flowing in during your leaner times.
GoCardless offer a great cost effective method of collecting Direct Debits from your customers.
Make sure you monitor cash flow
I’ve saved the most important until last:
Get yourself a good accounting system that will allow you to monitor and control your cash flow.
The old adage “what you can measure you can manage” has never been truer than when it comes to cash flow.
A good system will allow you to chase and collect overdue payments, schedule payments of your own bills and to predict your projected cash flow and assess what impact certain events.
ie, the non- or late-payment of a customer invoice will have.
When you have this information to hand, you take appropriate action.
Remember: IF YOU CAN MONITOR IT, YOU CAN MANAGE IT!
Take these tips into your business, apply them appropriately and you can guarantee your cash flow will be as good as it can possibly be.