Top Tips for Cash Management
As everyone knows, cash is the lifeblood of all businesses; once cash stops flowing then the business will die, as happened to many companies in the aftermath of the recent banking crisis.
It’s just as important too as we start to come out of recession: with renewal of confidence in many sectors, companies will be looking to expand. Taking on new customers can put additional strains on cash flow as capital is tied up in new stock, plant and increased overheads.
Attracting new customers is crucial for any business to survive; getting paid by your existing customers is absolutely critical. So here are my top tips for managing cash.
1. GET YOUR INVOICES OUT Your customers won’t pay you if you haven’t sent them a bill, so make sure you’re always up to date with your paperwork. Do it regularly so it becomes routine.
2. MONTH END IS CRUCIAL Many business pay in the month following invoice, so get your bills dated as early as possible. For example, if you’re billing in the first week of September, make sure that any jobs completed in August are dated August. If you date it September you might not get paid until October.
3. RECORD KEEPING Lots of us hate it, but you’ve got to keep it up to date. If you don’t know who owes you what, then how can you chase it up? And you don’t need a computerised bookkeeping system, you can enter your sales on a spreadsheet, print them off at the end of each month, and tick the debtors off when they’re paid.
4. STATEMENTS Send them out regularly, at least monthly, but not too often as this can wind people up!
5. TERMS Make sure everyone knows your terms of trade and stick to them. Do put customers on ‘stop’ if they take excessive time to pay; there’s no point in doing work for people who won’t pay you.
6. THIRD PARTY CALLS Getting a third party to chase debts for you can be good in two ways: it preserves your relationship with your customer, and it frees up your time.
7. LEGAL LETTERS / RECOVERY ACTION A simple letter threatening legal action can often work wonders. Keep it short and to the point, but be polite; we may want to keep these people as customers if they’re profitable. If this fails, try using a debt recovery service or specialist legal firm (Note, your local solicitor can be very expensive so use a firm that’s geared up for this type of work).
8. KNOW YOUR POSITION Always be aware of what you are owed, what you owe to creditors and how much is in the bank.
Remember, a business can only run out of cash once, so make sure it doesn’t happen to you!
