James Salmon. 5th April 2017.

How to Improve cash flow within your business

Jack Welch said “Too often we measure everything and understand nothing. The three most important things you need to measure in a business are customer satisfaction, employee satisfaction, and cash flow. If you’re growing customer satisfaction, your global market share is sure to grow, too. Employee satisfaction gets you productivity, quality, pride, and creativity. And cash flow is the pulse—the key vital sign of a company.”

John “Jack” Francis  Welch, Jr.  was chairman and CEO of General Electric between 1981 and 2001. During his tenure at GE, the company’s value rose some 4,000%. He knew what he was talking about when it came to building strong robust companies. If he said “Cash-flow is the pulse”, then we had best believe it!

Even when sales are growing rapidly and profits are increasing, it does not automatically follow that cash flow will take care of itself. Even growing, profitable companies can get themselves into cash flow problems; increased sales need upfront funding.

Good cash flow is not something that happens overnight. It means putting in place procedures within your business that will have a positive and long-standing effect.  If those procedures are followed, you will significantly minimize the risk of getting into financial difficulties.  Business owners who think ahead will be safe rather than sorry.

Use discounts

Why not consider giving early settlement discounts to your customers. All of us like a saving, especially if it means that more money stays in our wallets and purses. This is a good way of encouraging people to pay early. If you offer customers a discount for early payment you will quickly see the cash roll in.

Lease instead of Purchase

While leasing usually ends up being more expensive than buying in the long run, unless a company is flush with cash, coming up with the cash for big capital expenditure can cause stress. By leasing, you pay in small increments, which helps improve cashflow. An added bonus is that lease payments are a business expense, and thereby can often be written off.

Credit Check

If that new client does not want to pay up-front then they may have cash flow or credit problems of their own. By not doing business with people who don’t have the ability to pay you, you are saving cash on fulfilling orders you are not going to be paid for. That is where an advance commercial credit check is hugely worthwhile. The Credit Protection Association can provide this within seconds.

Make Daily Electronic Payments

If you do a monthly payment run for all your suppliers at the end of the month you are likely paying at least some of them earlier than they actually asked to be paid!  So consider holding payment until just before it is due and set up electronic payments for all suppliers so they only receive the money when it is due. Don’t resort to paying them late, you want to maintain a good relationship. But there is no need to pay them early either!

Manage your Inventory

Do you have a large stockroom full of things that rarely sell? Having unsold stock ties up cash. You don’t want to miss out on a sale because you did not have it in stock, but can you manage your stock and get rid of stuff that does not sell, even if you have to sell at a lower price? It can be emotional to give up an unsuccessful line but trends rarely reverse. Be objective!

Send out invoices immediately

The longer you wait to raise an invoice, the longer it will be before payment is due. That means it will be longer before you get paid and means your customer is using their finite cash to pay someone else first. Get the invoice out and get your cash in. Why not send the invoice by email to the person responsible for payment then there can be no doubt that it has been received.

Increase Your Prices

Increasing prices can scare many business owners. They worry it will hit turnover. But can they experiment with pricing to find the perfect number? How high are customers willing to go? There’s no way to know unless they take a chance.

Have a process in place for payments that are overdue

Customers who do not pay have always existed and will always exist, that is why you should always be prepared for these situations. Have procedures written down to follow when late payments happen. Start with a polite phone call or an email. Have a procedure to send a reminder a week later?  Have a fixed point when you will pass it to a third party for collection. You do not want to be aggressive and  scare off your customers, but it can be equally damaging to be a walkover. By being passive and waiting quietly for a payment, the situation can keep happening over and over again, because the other person may think there is nothing wrong with being late a few days or even weeks. It is best not to  assume that all will eventually just sort itself out and your customer will just do the right thing all on their own. It rarely ever happens!  The Credit Protection Association’s overdue account recovery service is an excellent tool to help prompt payment.

Monitor your debtors

Just because a customer has always paid on time in the past, do not assume they always will. Monitor debtors to see if there is any change in their circumstances. The Credit Protection Association service provides the facility to monitor customers at the click of a button and you will receive an email if anything changes. Also regularly review the outstanding balances owed to you. We cannot overemphasise how important it is to produce regular reports regarding the financial situation of your business. It helps if you take action immediately and minimise any risks that can have horrendous effect on your business.

Healthy cash flow is the result of putting in sound procedures so that your company’s cash flow runs efficiently and smoothly. Hopefully the above suggestions will help.

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