A business can survive for a short time without sales or profits, but not without cash. It is cash which pays the bills and allows trading to continue. If you are growing and extending credit to more customers, the need for cash is even greater.
Progress payments
When you negotiate contracts with customers be aware of setting payment terms that help your cash flow, such as deposits or progress payments.
Invoice immediately
Improve your sales and profit margins by making sure all your work is invoiced for as soon as possible. Efficient invoicing can make a real difference. With bigger customers you need to get into the customer’s payment cycle as soon as possible.
Raise cash quickly
If you need to improve your cash flow temporarily, adjust your sales and marketing plans to suit. For example:
- Bring forward sales by offering customers incentives to purchase quickly.
- Bring forward payments by offering early-payment incentives (such as discounts).
- Focus your marketing on short-term lead generation, rather than longer term objectives like brand recognition.
Commission on payment
If you pay sales commission, link it to receipt of payment rather than receipt of order.
Credit control
An efficient credit control system speeds up your cash collection and reduces bad debt. It also saves time and demonstrates to your lenders and investors that you run your business professionally.
- Credit check all customers before you extend credit terms.
- Control how much credit you provide and to which customers. Consider using credit scoring systems and setting appropriate credit limits for all customers.
- Avoid giving any customer more credit than you could afford to lose if the sale turned into a bad debt.
- Send out invoices immediately after you have supplied the goods or service. If appropriate, make a follow-up call. Confirm that all the invoice details were correct and that there will be no problem paying it by the due date.
- Monitor late payments and chase them up methodically, largest debtors first.
- If you intend to charge interest on late payments this must be stated on your terms of trade.
Using a debt collection agency, or a specialist lawyer, can be an effective method of dealing with non-payers.
Control expenditure
Implement simple cost control systems across your whole business, to identify scope for cost savings. For a start, four types of savings can usually be found if you investigate:
- Audit your business to identify what could be turned off, re-used or cut down.
- Excessive costs, such as paying more for services that can be sourced more cheaply.
- Inefficiency, such as laborious paper-based systems which could be automated
- Missing any volume buying or early payment discounts.
Stock control
If you hold stock, good stock control can release substantial sums of money:
- Aim to hold just enough stock to service your customers on an on-going basis. Identify seasonal peaks and troughs.
- Set a target stock-turn (such as six times a year), then monitor your performance.
- The faster your suppliers can deliver to you, the less stock you need to hold.
- Focus on your top selling items. Consider selling off any slow moving, old or obsolete stock to raise extra cash.
Consider generating cash by selling off underused assets and leasing them back.
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