Five tips for healthy cashflow in 2016

Although factors that lead to cashflow issues may not be in control of a business, there are some actions companies can take to help keep healthy cashflow.

Healthy cashflow is a sign of a healthy business. Conversely, cashflow issues can severely damage an organisation’s ability to remain operational. With 2016 almost here, it’s important for businesses to make sure they’re doing everything they can to maintain their cashflow in the coming year.

Mark Hoppe, Managing Director of Atradius, says, ‘steady cashflow is imperative to keep a business going. If cashflow is interrupted, it means that staff can’t be paid, new stock can’t be purchased, and the business may grind to a halt.’

‘There are a number of things that can cause cashflow problems for businesses,’ Hoppe adds. ‘One of the most prevalent is non-payment or late payment by customers for goods and services. Other factors include market pressures such as diminished demand, heightened supply, or a soft economic climate.’

While some of the factors that contribute to cashflow interruptions may be out a company’s hands, there are steps they can take to reduce the risk of falling prey to them, and others that can be taken to help mitigate cashflow problems.

Here are five key tips to help businesses maintain healthy cashflow in 2016:

  1. Keep your eyes open

It might seem simple, but the first step for businesses to maintain healthy cashflow is to make sure they are dealing with companies that have a good credit history, are trustworthy, and can pay invoices on time. If a customer’s credit rating changes for the worse you should consider reassessing your terms of trade with them.

  1. Don’t dally with late payment

Your business can’t maintain its cashflow if your invoices aren’t paid on time. Keep track of when invoices are due to be paid, and follow up regularly to try and ensure prompt payment. Do not delay in chasing payment as soon as invoices fall due.

  1. Issue invoices promptly

If a company takes a while to issue an invoice, its right to demand prompt payment is diminished. Administrative task can slip down the list of priorities in a small business focusing on creating new opportunities, but it is crucial you see through the opportunities you have already created – make sure you issue an invoice with a clear ‘pay-by’ date as soon as a sale is confirmed.

  1. Increase credit lines

One way to keep cashflow going is to increase lines of credit with lenders or suppliers. If your organisation’s underlying finances make it safe to do so, increasing credit lines is a quick and easy method to maintain healthy cashflow if you are not expecting much income in the near future, or have expenditure commitments. Just beware that extending credit can expose your business to increased risk down the line – assess whether or not this measure is suitable for you.

  1. Protect yourself

Businesses can protect themselves from a variety of forces that interrupt cashflow with trade agreements, contracts, and trade credit insurance. Trade credit insurance helps maintain cash flow in the event of non-payment of your invoices and allows you to trade confidently in a fluctuating market.

‘Trade credit insurance can mitigate the fallout from a variety of situations that may leave a company with cashflow issues, including a customer becoming insolvent or a supplier’s shipment being delayed,’ says Mark Hoppe.

‘Businesses trading on credit terms often have substantial amounts of working capital tied up in accounts receivables, which can be risky if customers don’t pay on time. Trade credit insurance protects cashflow by ensuring accounts receivables are covered no matter what.’