Top 5 Cash Flow Tips
18 June 2019
Cashflow problems closed down an estimated 350,000 businesses in the UK in 2016-17, according to recent statistics from the Office for National Statistics, with half of UK’s small and medium-sized businesses (SMEs) being paid late.
How can you improve your cashflow?
Be clear about your termsIn the excitement of your first orders coming in, a detailed payment process may seem secondary to SMEs which is a big error. When quoting for business and agreeing a fee, take the opportunity to clarify your payment terms. Issue your customers with prompt, clear and error-free invoices with a full description of the goods/services supplied and your pre-agreed terms. This offers you the best chance of being paid on time.
Don’t be afraid to chaseAs soon as an invoice comes due, do chase it up. If you don’t, your customer will get used to paying late and may take advantage. Chasing payments can be time consuming and stressful but taking a consistent approach should work in the longer term and reduce the risk of over-extending credit.
Keep your distanceOften SME owners are concerned about spoiling their commercial relationship with clients if they have to follow up on late payments or if there is a dispute about fees. Therefore, it can be a good idea for business leaders to separate themselves from this element. If you have an accounts department or finance manager then it makes you look more professional if they can take control. Ensure there are clear payment terms in place. As soon as a payment has defaulted, the accounts department should politely call or send a simple, non-threatening letter to remind the customer.
Take a flexible approachThink about ways to encourage prompt payments, for example, part payments upfront, monthly plans, discounts allowed if paid within 15 / 30 days or a discount next time if you pay on time this time.
Embrace technologyNew software offers you the opportunity to make your business’s processes more efficient such as submitting digital invoices to customers including user-friendly ways for them to pay. For example, with Xero software, you can invoice a customer from your smartphone as soon as you get in your van after supplying a service. The customer can then pay you online immediately. Using such software enables you to monitor your cashflow in real time from anywhere.
Don't stick your head in the sand - to stay ahead of the game and mitigate problems, you have to be clear, consistent and constant in your communications with your customers. Rigorous cashflow management and meticulous invoicing remain vital disciplines to keep your business afloat. If you want to find out more about digital options and software please give Maria Evans a call.
For more information on software technology options already approved by HMRC please click on the link: https://www.tax.service.gov.uk/making-tax-digital-software
You can also read more on The Scourge of Late Payments.