Cash flow is critical to any business. If you’re like most other business owners, it’s probably the thing keeping you awake at night. Most business owners spend an average 10% of their day chasing up late payments which has a significant impact on cash flow. To help, here’s a few tips we’ve used successfully in the past to help our customers improve their cash flow and sleep better at night.
It’s important to measure on average how long customers take to pay. You need to know how long stock sits on the shelves or how long jobs take to get out the door. By mapping your finances out on a weekly, monthly and quarterly basis, you can get an idea on the numbers and set targets to improve them.
- Get your cash in sooner
Get your invoices out the door as soon as you’ve done the job. Don’t wait until the end of the month to invoice. If you’re receiving payments an average of a week late, change your terms to 14 days after invoice, rather than the 20th of the following month. A lot of customers will comply with the new payments terms! Maybe have a “pay now” button on your invoices to make things easier for customers, so they can pay immediately on credit card?
- Monitor your stock
If old stock is still sitting on your shelves then this is damaging your cash flow. You’ve paid your suppliers so get the stock sold even if you have to sell it for a discount. The cost of poor cash flow is higher than the cost of discount.
- Use preferred suppliers
Regular payments will help businesses to build good relationships and support each other. Establish a routine and keep each other informed of best practice, policy, innovation and tech advances.
- Attention to detail
Administrative errors happen, so if something is wrong with an invoice, for example the reference number doesn’t match up or the date is incorrect, find out why. Repeated errors will reflect badly on you and affect your cash flow.
- Get clever with your funding
If you’re in a boom and bust industry, you might find it tough to pay yourself every week. Smart banking systems are a great way to smooth out your income, making your life easier. Also, get help with funding on working capital – don’t just fund it out of your own pocket. If you’d like to go over you banking options, we can put you in touch with people who can help.
- Empower everyone and use clever systems
If you’re a small business, sharing issues about cash flow can be important. As long as there’s a level of trust between partners or directors, then make improving cash flow a priority for everyone. Use software that allows multiple people to access the data and check reports regularly. Systems like Xero, Debtor Daddy, Batchbook and Unleashed will help you get your invoices out the door quicker, lower stock levels and in turn improve your cashflow.
If you’re after some more cash flow tips, check out www.iif.co.nz or give us a call on 04 212 4977