If good cashflow management is important during fairer economic climbs, it becomes utterly crucial when recessionary headwinds are strong.
Robust cashflow control policies help to ensure that your business has sufficient cash to pay the bills, without having too much on the books simply lying idle. Here are some key cashflow management tips to help you take control of your own cashflow:
- Set-Up an efficient invoicing system. It may sound obvious, but aim to send out client invoices on time. The faster your customers get their bill, the sooner you get paid and the less time there is for any ambiguity to set in. If you bill some customers for various independent blocks of work, sending out many individual invoices can make sure that at least the bulk of them will be settled. Sending one giant bill could mean the whole payment could be delayed should the client discover queries with one small part of the entire invoice.
- Create Direct Debits/Subscriptions For Regular Clients. When you’re providing a standard product or service on a regular basis you can save both your time, and your clients time by setting up a direct debit or subscription. On a generic business note, it’s also more prudent to build a business around a model that generates regular cashflows from your clients, as opposed to one time payments.
- Act quickly when you see a cashflow situation appearing on the books. When the numbers clearly suggest that there could be a worrying spike in your working capital requirements, act fast to access the credit markets to address any shortfall. If you’re approaching a bank, provide a detailed explanation as to why the crisis has come about, and illustrate the likely time-frame that the additional capital will be needed.
- Create a detailed cashflow forecast. It’s crucial to create a detailed, rolling forecast outlining the major expenses and income. Without it, you’ll never truly be in control of your cashflow situation, and should your cashflow stumble into problems you may not even realize before it’s far too late.
- Invest cautiously in inventory. Good cashflow control relies upon matching orders to stock. This can be a tricky juggling act, but it’s essential not to bung up your warehouse with excess stock that you cannot shift. Similarly, if your business involves creating bespoke products/services for your clients, make sure the order is signed, sealed and delivered before parlaying cash on the raw materials needed to start work.
- Set up legally binding terms & conditions for your customers. Having a formal and legal contract between you and your customers will help foster a more professional relationship and will encourage your customers to pay on time.
- Practice efficient debt management. A key element of a solid cashflow control plan involves ensuring that your clients are paying you in full, on a regular basis. Many small businesses do not have a debt management protocol in place, and randomly try and chase up due payments on an ad hoc basis. To get on top of your cashflow, you have to know which clients owe your business money – and ask them to pay up.