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Our Top Tips for Cash Flow Management

cash flow management

Cash flow management is a key aspect to the survival of your business; done effectively your business has the potential to thrive, but neglect it and you may be putting your business at risk.

Cash flow management

Financial Risk

Due diligence is a huge part of keeping cash flow positive; by carrying out credit checks, you will discover if your customer actually has the ability to pay you when all is said and done. Carrying out due diligence does not guarantee payment, but it will dramatically reduce your risk of non-payment and potential bad debt.

Offering credit

There is a cost to offering credit to your customer (more than you may be aware), so ensure that you understand exactly what offering credit will mean to your business and only agree to terms that are appropriate to your business, and will not impact negatively on your cash flow.

Terms and Conditions

Your Terms and Conditions should play a starring role when entering into business with a new customer. First things first (and whilst it may sound obvious) ensure that you have Terms and Conditions, and ensure that they are fit for purpose. You should subsequently make your terms and conditions known to your customers, whilst some will accept them as they are, others may not agree with all aspects; don’t be afraid to negotiate in cases such as these, but don’t agree to anything that could put your business at risk.

Acceptance of Terms

Ensuring you can prove that your Terms have been accepted by your customer is essential. You can evidence acceptance in a number of ways, i.e. verbal, written and by conduct; however I would always recommend getting written acceptance, as you can then evidence, clear as day, that your terms and conditions had been accepted should you find yourself having to take legal action against an unpaid debt.

Managing disputed invoices

You need to have a strategy of how you will resolve disputes when they arise. Decide who will deal with disputes, and ensure you measure them by value, volume and time taken to resolve so that any patterns can be identified; for example if many people dispute the invoice due to incorrect price you need to assess your invoicing procedures.

Collection strategy

Organisation and confidence will play a huge part in your collection strategy; know when to contact your customers and what you need to say when you do speak to them. Making detailed notes of each contact with a customer is essential to understanding where their account is up to and what your next steps should be. You then need to have a strategy in place with regards to when overdue accounts will be escalated and you begin using leverage to get paid, i.e. adding late payment interest, stopping their account, or initiating a final demand pertaining to legal action.

Be proactive when deciding to take legal action

When your strategy leads to having to take legal action, don’t procrastinate on your decision; if you have told your customer you will be proceeding with court action if payment is not received in 7 days, follow through with this promise if payment isn’t received or no payment plan has been proposed. On the flip side of this, however, is that you must assess your debtors ability to pay prior to taking legal action, you may be at risk of throwing good money after bad if this is not the case.

Monitor and set targets

Keeping track of your cash flow is essential to the survival of the business, tracking aspects such as collection performance can provide you with areas for improvement and subsequently you can set yourself targets based on this. Say for example your debtor days (the number of days from invoice to payment) are high, set your business a goal for where they should be ideally, and work towards that.

Ensure you have the best cash flow management strategies in place; our order to cash process covers all topics covered above – book your place today