10 steps to better cash flow

1. Send invoices promptly
Late payments are a huge problem for small business cash flow, so make sure you send invoices as soon as you can. If you are prompt in sending out your invoice, you will be more likely to get an efficient payment back. If you are having problems with overdue accounts however, see our guide to late payments.

2. Make sure customers understand and respect your terms
It is important to make customers aware of your terms of trade from the moment you begin your business relationship. To ensure that these terms are respected, you must be firm but fair. This will go a long way in reducing late payments.

3. Streamline your paperwork
Instead of sending out both invoices AND statements, combine the two. Call it an INVOICE/STATEMENT and print at the end of the invoice “please pay on invoice as no statement will be issued. This will reduce your paperwork and postage, and means the customer will pay faster as they won’t wait for a statement.

4. Build a good relationship with customers and suppliers.
Another way to encourage customers to pay on time is to build a good rapport with them. This will encourage them to pay you first, as well as making it easier to negotiate any problems. The same goes with your suppliers – if you foresee problems in paying a bill, it will be a lot easier to negotiate an extension if you have a close relationship.

5. Make payments on time
After you have gained a good rapport with your suppliers by making payments regularly, you may be able to negotiate better terms of credit or discounts. It is normal to be offered a discount of 1.5% to 10% off the invoice amount if payments are made by the due date.

6. Have a credit policy
Extending credit to just anybody will be bound to lead to bad debt, soit is important that you have a system in place which controls this. When you lend credit, you are essentially functioning as a bank – so you should evaluate every customers credit-worthiness just as a bank would. See our guide to controling credit for more information on setting up a credit policy.

7. Be wary of very large orders
While landing ‘the big order’ may see like every business owners dream, they can in fact lead to problems. For one thing, they can make you too dependant on just one customer, which means if that if they have problems, so do you. They can also make you over-extend yourself; you may hire more staff, purchase more equipment, but not see any return to cover those costs for months. Finally, if you focus too much on just one customer you can neglect others, which could cost you their custom in future.

8. Reduce stock
The most successful businesses are those that turnover stock quickly. While you want to make sure you can satisfy your customers’ needs, having surplus stock can be a real financial burden. Don’t keep old stock; sell it even if you have to do so at a loss – the money you make from it can then be used to buy new stock that will sell.

9. Reduce overheads
Closely monitor your expenses for 3-6 months, and you will get a good idea of where the money is going. You may find that there are some areas where you could cut back without compromising your service levels. Perhaps you could save money by switching power or telecoms suppliers, and maybe you’d be better off renting or leasing capital items. This is an area where a good accountant could help.

10. Staff and benefits
If cash is tight and you’re employing staff that you don’t need, let them go. Cutting back on benefits or bonuses should be a last resort however, as disgruntled employees can do your business serious harm.

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