Factoring Articles

Tips to Help Your Small Business Improve Cash Flow

We have all heard the phrase “cash is king.” What makes or breaks a business, large or small, is cash flow.  Following are some relatively easy steps that can be taken to improve cash flow, which also results in a better managed business.

• Get to know your cash flow – Budgets are useless if they are just a plan that looks at sales, costs, P&L's and balance sheets. The key think is your cash flow. Get a good accountant if need be. If it looks as though your cash is low, then begin doing weekly or even daily forecasts. Develop an action plan - if cash is tight, then look at how you might bring forward some payments, or speak to a factoring services company like the Interface Financial Group (IFG) to see how we can assist you.
• Invoice clients daily – and do not act as their banker.  Always invoice on the same day your goods or services are delivered to your customer. Every day you delay invoicing is another day they should be charged interest just like your bank charges you!
• Do you know your bank manager? If not then get to know him right away. When you don't need any money from them, a bank manager is just a human being too. Get to know yours, tell them about your business, and be sure to ask for their advice. When you do need them and the bank’s cash you may have a much better chance of getting it.
• Always accelerate collections - sounds most obvious but so many don't do it. Track due dates, call your debtor beforehand so you can get their commitment to pay on time. You will also identify any problems and reasons why they might not pay on time and can then solve it now rather than in a couple of weeks when the debt is already overdue. If you really need them to pay early perhaps offer a discount for early payment but don't set too many precedents. Above all make "noise". It is those that make "noise" who get paid when times are tough. Debtors will delay payments to those who do not make a fuss but are always wary of holding back on those who know their rights.
• Try to decelerate payments - again sounds obvious. But be strategic. Key suppliers need to be kept sweet but if you are important to them as well a well-timed conversation asking for some more time to pay will often pay dividends. Don't incur fines or late payment charges. That is just plain stupid and is money down the drain.
• Use smart finance products - overdrafts, invoice invoice factoring, leasing are all there to help you manage and exploit your cash flow. Learn about them. Don't be afraid to use them, they are legitimate cash flow management tools. Always have a Plan B. What will happen if the bank pulls your overdraft? What if you cannot get additional facilities to fund that new project? Investigate alternative funding sources or even as a final option a credit card.
• Manage your business growth - don't just assume that by accepting new orders and growing you will automatically generate profit. Always assess the cash flow impact of opportunities and decisions. If by accepting that new project your cash flow will be pressured use it as an opportunity to ask for a higher price to pay for additional funding or ask for payment in advance. You will often find that by knowing that you just have to have these more advantageous terms your negotiating skills are improved and you will end up getting them. The worse that can happen is that you don't get an order that you could not afford to supply anyway!
• Do not dip into the till – This message is for all business owners, especially if your company is having cash flow issues. The very last thing that you should be doing is taking home too much of the cash. Your accountant or tax advisers can help you work out how much the business can afford to pay you, then schedule it in the most efficient way for the business, and stick to it until your business is out of the hole. Please contact us if you would like some further information on The Interface Financial Group and our factoring products, please call us now on 0800 014 8626 or visit www.ifgnetwork.co.uk

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