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3 steps to better cash flow

December 23, 2017

 

For companies looking for sustainable business activity and the chance to invest in future development, cash flow needs to be monitored carefully. The old saying ‘cash is king’ still rings true and contributes to the effective management of budgets and potential growth of the company.

 

There are some key elements to consider when maintaining healthy cash flow including:

 

Measuring cash flow effectively

 

Preparing cash flow forecasts and projections should be a regular reporting procedure for all businesses. Although this report does not give you an exact picture of the future, it will offer guidance on the health of the business according to a range of factors including aged debtors and creditors, upcoming business costs and regular expenditure. This type of report can be updated on a daily, weekly or monthly basis dependent on the liquidity of the company and gives you a informative insight on what decisions need to be made to improve or sustain the current cash flow.

 

Improve your terms

 

You may have thousands of customers ordering your products and services but if they are not paying on time, this could cripple your business. One of the ways to improve this situation is by revaluating your invoice terms and offering other payment options. If you feel you have reasonable terms but are still dealing with regular late payments and the extra costs of chasing debt, why not consider offering early payment discounts or for some services, a prepayment clause.

 

On the other side of the business, purchase terms are another element to look at for efficient cash flow. Negotiating terms and prices should be a regular consideration especially if you are experiencing leaner periods. When paying suppliers, be sure to hold onto your cash as long as possible and pay on the last day to avoid tarnishing business relationships. Keeping a consistent open line of communication between your business and suppliers helps to keep terms favourable to your business. If you cannot come to an agreement, be sure to look around, as companies will always try to keep existing customers, as it is much harder to find new ones.

 

Set targets and prepare for shortfalls

 

Many areas of the company have targets to meet on a regular basis, which encourages business performance and subsequent growth. Alongside these business areas, setting a cash flow target in the finance department is another way to monitor and encourage a consistent flow of invoice payments. This also provides regular reports on the status of the money owed by customers.

 

Monitoring cash flow and setting targets to sustain the inflow of cash also gives heed to potential shortfalls in the process. Shortfalls are a part of everyday business and are sometimes unavoidable, as you cannot prepare for every eventuality. The key is to survive them. Options for short-term liquidity include extending credit at your bank, negotiating terms with suppliers, chasing outstanding debt for faster payment and in certain cases opting for a business loan can help bridge the cash flow gap which supports day-to-day activity. 

 

We appreciate every business is unique, so are the solutions to ease short or long term cash flow restraints. Contact us and we’ll take care of every detail and how we may offer a tailored financial solution to suit your business.

 

 

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