Managing Cashflow: What The Latest Reports Tell Us
Luisa Grey, a director at Eazipay, explains how your small business can avoid the cashflow traps that so many others fall into
A raft of new reports on small businesses and cashflow last month has underlined the unnecessary time and money being spent on managing company cash flow.
While technology has enabled businesses to simplify many aspects of their day-to-day operations, daily cashflow management is still a challenge for UK small businesses. A recent survey found that small firms are collectively losing over £8.72bn every year as a result of the time taken to complete weekly finance related tasks.
Another study revealed that more than six out of 10 business owners regularly, or occasionally, draw upon personal finances like a personal credit card to support their business.
And with 15% of small firms also saying that they found this to be an issue, what can we do to avoid unnecessary cashflow volatility and business risks?
It’s critical to make sure, that alongside your profits forecast, you also have a cashflow forecast. Review it regularly to ensure you have the best toolkit to equip your business for managing payments and dealing with the unexpected hurdles that all businesses face from time to time.
Appoint someone to keep an eye on the cash. When the levels fall below a critical amount (which could be anything from £1,000 upwards depending on the size of the firm) they need to let someone in authority know.
Make paying simple for your customers. Cheque writing is tedious for everyone involved. Electronic payments are much quicker and the money will be in your bank account sooner. Customers can also be offered early payment discounts to encourage them to pay within a timeframe which works for you.
Look for and negotiate longer-term deals and business partnerships. Think about differentiating your services from your competitors by offering alternative billing arrangements, including the use of classic retainers and monthly payment schedules, to enhance your competitive edge.
There’s nothing like getting all your customers on to direct debit to make life easier for everyone and really stabilise your cash flow. Most of the time, automated processes are just better (how much time do you spend chasing invoices?) and can leave you to spend your time more efficiently.
Invest in effective alternative financing solutions such as invoice or supply chain finance. Don’t rely excessively on loans and investments – this will affect your ability to manage cashflow effectively.
Don’t be a late payer yourself. Not only will it reflect badly on your company, you could incur unexpected costs and charges. Signing up to the Prompt Payment Code and, where possible, working with other companies that are signatories to the Code is another quick and easy step to take.
The Prompt Payment Code sets the gold standard in payment terms and its members have made a commitment to lead the way in payment practices.
Finally, if you are having a cashflow crisis, talk to your bank. They might well be able to help you out with some short-term funding and give you sound advice on how to avoid a similar crisis in the future.
It’s true that if a company has poor cashflow for a sustained period, it is at grave risk of going under, no matter how profitable it looks on paper. This is because although it may have a substantial order book, if it’s not getting the money in from its customers fast enough to pay for the employees and goods and services needed to fulfil those orders, it’s unlikely to survive for long.
However, taking the steps above, you can start making sure you cut down on the stress and set your business up for continued success.
Luisa Grey is a director of Eazipay Ltd, one of the UK’s largest and fastest growing Direct Debit processing companies. For more information visit www.eazipay.co.uk.