Written by James Vear, Compleat Software: To growing businesses, there are hundreds of headaches that come up every month. However, if you ask around, every one of them will tell you that the thing above these headaches that keeps them up at night is cash flow.
How do we make more sales? Can I get better pricing with my suppliers? Will I be able to pay my staff this month?
These are completely valid and legitimate questions business owners ask themselves every month. According to the Office of National Statistics, in the UK only 40% of businesses survive after the 5-year mark, meaning 6 in 10 businesses ultimately fail.
It’s a scary statistic, but there are actions businesses can take to not be a part of the majority:
1. Don’t wait for any old time to invoice your customers
One of the easiest ways to improve cash flow is as simple as invoicing customers straight away. With so much happening around the business, it can be easy to see why other things could take priority. But a customer won’t pay the invoice unless they have received it, so it is always in your best interests to get it to them as soon as possible! The best way to do this efficiently is to implement a solution that automates the issuing of invoices to customers as soon as the agreed product or service has been delivered.
2. Enforce your payment terms and chase late payments!
It’s one thing to give someone an invoice, it’s another thing to get it paid. Delivering the invoice straight away is half the job, but some customers always have and always will try and push the payment barrier when it comes to fulfilling the invoice But, by enforcing your payment terms and chasing unpaid payments you are making sure there is always cash being injected into the business and your customers will take it more seriously when it comes to paying you on time.
3. Always know where you stand financially
Something that is inevitably widespread across businesses is waiting for their month end reports to see where they stand financially. Now, by this stage in most cases, if there was anything alarming that happened throughout the month that the report highlights, you are now 2-3 weeks behind due to the lead time to produce the report, and by then, it may be too late to fix it. This margin of time could ultimately mean life or death for the business. Investing in systems that can give you a live snapshot of where you’re at financially could ultimately be the life saver for your organisation.
4. Don’t let purchase invoices sit un-paid forever
Depending on the size of the business, purchase invoices will likely need to be approved by a certain member of the organisation. This can historically be a long, drawn out process and in the worst cases result in lost unpaid invoices. Putting in processes to get purchase invoices approved quickly will give businesses the ability to see their outgoing cash clearly and plan for payment so, there are no nasty surprises down the line.
5. Negotiate better deals with your suppliers
By paying your suppliers on time and communicating better to them, you will have greater power to negotiate better deals with them. This can be better deals on the goods and services they sell you or even a better deal on the payment terms. Both would help with the cash flow of the business and if you don’t ask, you don’t receive; but it’s always better to ask a supplier you have a good working relationship with.
According to the Office of National Statistics, in the UK last year there were over 300,000 new businesses created, meaning the competition has never been tougher. The survival rate will only get lower in the years to come and in no way is the above a failsafe for business survival. But as businesses who have made it past the 5-year mark will tell you, cash flow is the most important thing to surviving and growing the business.
Further reading: www.compleatsoftware.com/company/insights.
Written by James Vear, Compleat Software. Exhibiting on stand 460 at Accountex 2018.