Cash flow is the lifeblood of any business we know that. You know that. However, profit doesn't always equal cash so we need to ensure we keep the cash in the business as long as we can.
- Chase your debtors. The squeaky wheel always gets paid, if you aren’t asking for your money you wont get it. Have a system in place to regularly chase your debtors. You can automate this if you use software such as XERO by setting up the invoice reminders.
- Give shorter credit terms. Check your terms of trade, there is no rule that you have to offer 20th of the following month payment terms. Why not state seven days? Then start chasing. You will get paid faster.
- Use your credit card. ONLY if you pay it off each month. However, it gives you 45 days interest free use of money, a way of extending your cash in the bank and paying suppliers on time.
- Use surplus cash to reduce debt. Today the credit interest doesn't even begin to ear you as much money as you are paying on borrowing interest. So save the interest costs
- Options for payment. Give your debtors multiple options to pay you, deposits, up front, credit card, online banking, paypal as well as credit terms. This way when you ask for the money there are several ways they can give it to you and PAY you.
- Review your expenses at least annually. Are you paying too much for your phone? Your mobile? Your internet? Your power? Your fuel? Just to name a few. With more services n the marketplace and things becoming competitive prices are dropping so you could currently be paying more than you need to.
- Review your automatic payments and direct debits. Are they all still for things you currently use? Do you subscribe to things you don't read or attend? Sometimes we forget and the payments run much longer than was intended. Check this on your credit cards too as we often have set up automatic payments from here.
- Do you need to buy that asset? Review what you want to buy and why and how it would be used. Often by leasing or HP there is a much smaller monthly payment that can be managed (and tax deductible) rather than one huge lump sum.
- Do not offer extended credit. Your terms of payment are YOUR terms. Do not feel embarrassed saying no to extended credit, by collecting debts when they are due and by chasing debts or even sending them to professional collectors. If you manage to recover a debt please have the courage to not do business with that debtor again. Once a bad payer…..
- Review your financing. Just as your expenses need review so does your banking and financing. Do your facilities meet your needs, when did you last review the fees and charges? What other products could better service your business?
Whilst we are talking about keeping the cash in the business, always consider the value versus the price. Cheaper today is not always cheaper in the long term, so you could sacrifice long term profit for a one or two month gain.
Oh and secret tip number 11 - review your prices, when was the last time your put your prices up?
One of our customers started a service business catering to large health care institutions.
They would provide a trained staff of people to perform services that the institution would otherwise have to hire employees to perform. They provided a turnkey service that would help improve the service levels while at the same time save the institution money.After they got her first contract, they began the process of recruiting, interviewing, hiring, creating an extensive training program, training the new hires, etc.This took about three months to complete.
After the team was in place and trained, they began providing the service. They sent their invoice to the institution after the first month of services had been provided. After a couple months went by they got a really big surprise. It turns out this institution held invoices from suppliers for at least 120 days before they paid them. In fact, it was somewhat of an industry practice. This was now almost seven months into the new business and they had not even collected the first dollar of revenue.
The business had been spending money all this time not realizing there would be this huge delay in actually collecting the money.So instead of running out of cash and failing Lock Finance were able to provide funding against her debtors with a confidential facility. This allowed the company to continue to trade and grow whilst maintaining a cash flow of days not months. This cash flowing through the business meant the difference between a successful growing business or liquidation of a failure.
If you would like to talk about how to fund your growth and get your business ready for explosive growth then call for a friendly informative chat with Sarah Lochead-macmillan, Lock Finance, 027 700 2065