Credit Control
“The creditor hath a better memory than the debtors.” James Howell.
It’s all about getting paid as soon possible and to do that you need to have procedures in place:
- Set clear payment terms and credit limits for your customers.
- Send out invoices on time.
- Firmly chase all debts when they’re due.
- Stop offering credit to bad payers.
Sales Forecasting
“Life is just a series of peaks and troughs, and you don’t know whether you’re in a trough until you’re climbing out, or on a peak until you’re coming down.” David Brent.
- By predicting what’s ahead you can be well prepared for leaner times.
- As you have a month’s sales behind you begin to forecast your cash flow.
- Using your market knowledge consider the external factors that can affect your cash such as the economy and your competition.
- Exercise restraint and avoid unpleasant surprises.
Cutting needless costs and reducing spend
“Whoever has the gold makes all the rules.” The Golden Rule.
- Examine every purchase and know where every bit of cash is coming from.
- Always get value for money and shop around.
- Evaluate what you really need.
- Attach a value to what you’ll derive from the purchase.
Negotiate good terms with suppliers
“The buyer needs a hundred eyes; the seller but one.” Italian proverb.
- It’s worth inquiring if you can extend your payment terms.
- Why pay your bill in 30 days if you can settle your bill in 90.
- Hold on to your money longer if it helps to regulate your cash flow.
- Set up regular payment plans for large orders rather than releasing a large sum of capital.
Managing stock
“It is always wise to look ahead, but difficult to look further than you can see.” Sir Winston Churchill.
- It’s important to monitor your stock closely and order only what you need.
- Work out what sells quickly and what you can make the most profit on.
- Don’t tie up your funds in slow moving items.
- Sell off old or outdated stock for a quick cash injection.
- There’s a trade off between customer service and demand versus capital tied up in a warehouse.
Don’t tie up cash
“Finance is the art of passing currency from hand to hand until it finally disappears.” Robert W. Sarnoff.
- Spend wisely and don’t be tempted to splash out on new equipment when the orders are coming in.
- When you’re buying assets consider asking for payment terms.
- Try and hold on to liquid cash.
Keep on good terms with lenders
“The two most beautiful words in the English language are ‘cheque enclosed’” Dorothy Parker.
- It always pays to keep on the right side of the bank.
- Don’t bury your head in the sand.
- Keep your books up to date so you can show your figures.
- If you’re struggling with repayments talk to your lender.
- Ask what non financial support and advice your bank can provide you with.
Invoice discounting
“Let us all be happy, and live within our means, even if we have to borrow the money to do it with.” Artemus Ward.
- One way to control cash flow is to utilise invoice discounting where a third party buys your invoice and releases cash based on its value.
- Some lenders will give you up to 90% of the invoice amount.
- Fees may be high so shop around.
- Use this option in the short term only!
Spotting the warning signs
“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.” Peter Drucker.
- Don’t ignore the warning signs! It’s easier to work out payment terms before you build up debt. Classic signs that your cash flow is suffering could be:
- A drop in turnover
- Customers taking longer to pay
- Late penalties incurred by HMRC
- Being forced to settle supplier invoices later than usual
Be realistic about your business
“The best preparation for tomorrow is to do today’s work superbly well.” Sir William Osler.
Sometimes you need to take a step back and take an overview and ask yourself a few questions.
- Why am I always struggling?
- Why is my cash flow statement poor?
- Are my sales too low?
- Are my products priced correctly?
- Can my credit control be more efficient?