Four ways to improve cashflow management

Strong cashflow increases the working capital available to business owners, improves their buying power and means they can keep up with their wages, tax and supplier payment obligations. Even profitable businesses experience peaks and troughs in cashflow and may need an injection of working capital from time to time.

We’ve recently released a Surviving Cash Flow Challenges Guide for SMEs, based on our experiences, to help fast-growing businesses navigate their way through the many common cashflow challenges, and. I’d like to share with you four tips for smarter cashflow management here.

Tip 1: Invoice in instalments

Invoicing in stages, rather than when the project is complete, can make a huge difference to small business cashflow – especially on a large project or a large order. See if your customer is prepared to put up a deposit or accept invoices based on deliveries made or milestones achieved.

Tip 2: Prepare a rolling quarterly cashflow forecast

Forecasting three months ahead makes it so much easier to anticipate cashflow peaks and troughs and to identify warning signs in your business. See your accountant if you need help preparing this forecast.

Tip 3: Invest in recognised accounting software and pay as you go

The beauty of SaaS (Software as a Service) is that you pay to use your accounting software in instalments and you automatically get upgrades, rather than pay a lump sum for software that might date quickly.

Tip 4: Do your debtor due diligence

Make sure you are doing business with customers who are credit worthy so that your invoices get paid in full and on time. An easy way to do this is to conduct credit searches on all new customers, and by doing periodic checks on existing customers. If you pick up any adverse signals relating to their credit worthiness, make sure you act on them promptly. You should also consider Trade Credit Insurance as a way to protect your business against customer insolvency.

In addition to smart cashflow management, I’d recommend that you also check you have the right level and type of funding in place to help boost the working capital in your business.There are a number of options available to small business owners, ranging from the traditional overdraft to merchant cash advances, P2P loans, marketplace lenders, unsecured lines of credit and online business loans.

One solution growing in popularity globally is receivables finance (also known as debtor finance) which is essentially a line of credit secured against accounts receivable. This means the cash due from a credit sale can be accessed immediately and put back to work quickly to meet current expenses or fund new sales.

Debtor finance does not typically require property security and can be used on either a short or long term basis. The line of credit grows in line with your business – enabling you to overcome cashflow challenges.

Wayne Smith, Head of Debtor Finance, Scottish Pacific

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