How to manage your cashflow
- 1 Regularly monitor and revise your cashflow budget to anticipate potential cash shortages.
- 2 Invoice promptly and chase outstanding payments vigorously. Invoices for business-to-business transactions must be paid within 60 days, unless an alternative payment period has been agreed. Public-sector bodies must pay invoices within 30 days.
- 3 Consider charging interest on late payments and debt recovery compensation charges to deter late payment.
- 4 Develop warning systems to identify where delays or unexpected changes could cause the business to run out of cash.
- 5 Be prepared to trade off profitability and other business objectives when your cashflow position is, or may become, critical.
- 6 Minimise the amount of cash owed to you by restricting credit periods or factoring debts. Generate short-term sales income by offering incentives to bring forward purchases and discounts for cash payment.
- 7 Cut unnecessary costs and shop around for competitive prices; negotiate generous payment periods and short delivery lead-times.
- 8 Use your stock control system to minimise cash tied up in stock.
- 9 Assess your cashflow position before committing to any new expenditure or increases in overheads. Consider using leasing to finance assets.
- 10 Be prepared to turn down orders if you cannot finance them. Negotiate deposits or stage payments for large orders and long-term contracts.
- 11 Build relationships with financiers and suppliers so they will extend extra credit when you need it.
- 12 Arrange additional financing before you need it. Seek equity investment if cashflow will not safely cover interest payments.
- 13 Sell unproductive or superfluous assets and discontinue business lines with negative cashflow.
- 14 Take into account short-term fluctuations which do not show up on monthly or weekly budgets.
- focus on receiving payment for sales
- keep cashflow budgets up to date
- avoid unnecessary or excessive expenditure
- arrange appropriate financing before you need it
- assume payments will be received on time
- tie up excessive cash in working capital
- overtrade by accepting orders you cannot finance