This content was reviewed in July 2024
Cash flow is the movement of money in and out of your business. Maintaining a steady and predictable balance of incomings and outgoings is important to keep your business running smoothly. Any short-term imbalance can lead to longer term financial problems.
Making improvements to cash flow can be a big challenge for small businesses. However, Zempler Bank highlight some practical steps you can take to put your business in a stronger position.
Forecast your cash flow
A good cash flow forecast should capture your business’s income and outgoings for a set timeframe, and can be organised by week, month, or quarter. Create and maintain a detailed cash flow forecast to help you understand when money is due into your business, where it’s coming from and when it’s due out.
At the end of every month check to see if it’s working by keeping your forecast aligned with your actual figures. You may notice that you need to re-forecast if you’ve over/under spent. Re-forecasting can also help you spot opportunities to improve the management of your business. You might identify idle cash that could be put to better use or potential savings that could be made.
Review customer payment terms
If your customers are not paying you on time, it might be wise to rethink the terms of payment you’re giving them. Some simple ways of doing this are:
- Shorten your payment terms, for example from 30 to 14 days
- Include ‘Due Upon Receipt’ on the invoice (instead of ‘Payment Due Within 30 Days')
- Request part of the payment before you carry out any work (depending on the customer/industry)
Negotiate payment terms with key suppliers
Just as your largest customers may seek extended payment terms with you, it’s important that you are obtaining favourable terms with your largest suppliers.
Encourage online payments
Providing a function that allows your customers to make payments online and encouraging this can both increase sales and improve your cash flow. Online payments help cut out any potential delay involved with sending out invoices and waiting for payments.
There can be occasions where a customer is late with a payment, or perhapUse credit carefullys you’ve been hit unexpectedly with a large bill. And for some businesses heavy outlays on stock are needed in advance of busy period. In these situations, borrowing by the business may be needed. Make sure you consider different types of lending that are available, depending on the level, duration, and future frequency of credit you will need, and seek financial advice from an expert. Some credit options are relatively expensive and not appropriate for long-term borrowing while others might now allow the flexibility you will require in repayment.
Check customers credit histories
Depending on the nature of your business, it may be wise to check who you’re doing business with before delivering goods or providing services if payment is not in advance. And if you’re concerned that a customer could default on a payment, there are things you can do to minimise this risk:
- Use Business Credit Checking Agencies: It may be worth paying for a credit report on the customer so that you have an idea of how safe it is to do business with them. You can do via any of the main credit bureaus including:
- Consumer Credit Reports: If you’re working with a small business that has a sole owner, then using Experian, Equifax and Callcredit to check their personal credit ratings could give also you an insight to how likely they are to pay promptly as a business.
If you follow all of these steps, it will go a long way to avoiding unwanted surprises and ensuring your business is on the best possible footing.
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