Liberis CEO Rob Straathof gives his best tips on how to keep your cash flow going
The amount of money going in and out of your business during a set period of time is known as cash flow, and managing your cash flow effectively is crucial to building a successful business. Late payments from your customers, or even to your own suppliers could potentially pose a great threat.
The old saying, “fail to prepare, prepare to fail” applies businesses of all sizes and stages. One of the simplest ways to ensure you are organised is to investigate ways to automate your management tasks. Some examples of this are finding free cash-flow management templates online, investing in invoicing software, such as Xero, or inventory management tools. These programs can tell you who owes what at just a click of a button, making payment tracking far more straightforward.
With so many UK businesses spending money on annual costs such as overheads and staff, it’s vital to be clued up on incomings and outgoings so you can sustainably plan ahead. Effective cash flow forecasting will help you avoid any nasty surprises, cover additional costs and allow you to pay on time. In the long term, this will also help you and your business reach your target goal. So, make sure to get those payment dates down on paper and account for your business’s high and low sales periods when gathering funds.
Incentivise early payment
If your business is particularly subject to late payments, try to understand why this is and consider tackling the issue with new ideas and processes. Depending on the nature your business, it could also be profitable for both you and your customers to think of ways to incentivise payments to come in on time or even early. This could be by introducing discounts and deals, such as 10 per cent off if the customer pays within a certain timeframe for example.
Alternatively, you could ask for a deposit for goods upfront or ask for full payment a week before goods are sent out. This avoids losing out on product and potentially late payments all together.
Don’t be afraid to pick up the phone
Maintaining a good relationship with your customers is not only a great way to ensure repeat business but building that trust and reliability can also encourage payments to come in on time. If you have this relationship in place remember that, when asking for a payment, a phone call is often much more personable and successful than an email.
Cultivating a good relationship with your suppliers is also key. This helps with things such as negotiating a credit account, which will ultimately support your company’s cash flow.
Do your credit checks
It is important to be selective about who you work with and to credit check prospective clients. A bad credit history could indicate late payment challenges for you in the future. Credit checks should also be carried out on existing clients, and even individuals within the organisation. It is always useful to have foresight over potential payment predicaments.
Set your expectations
Having standard procedures in place is critical in covering yourself and your business against the problems late payments cause. Setting payment expectations at the beginning of a business relationship is always a great place to start. It is important to get this in writing as a verbal agreement is unlikely to stand up in court.
It may also be useful to consider getting a set of terms and conditions drawn up to distribute to new clients, as well as having an established procedure to deal with late payments should they come about.
Rob Straathof is CEO at Liberis, a leading alternative finance provider for UK small businesses