cash is king - monitor your cashflow

Cash is king for any business, isn’t it?

The answer is yes, if you don’t have cashflow to pay the bills then you will quickly go out of business. Many a profitable company have gone to the wall because they have run out of cash and can’t raise additional funds even through the extension of an overdraft or business loan.

So how do you keep the cash rolling in?

Well first off you should prepare a detailed cashflow forecast. This doesn’t need to go on for years, just the next 3-6 months in detail (because if you can’t survive these months then it’s of no use to look any further).

You need to concentrate on getting cash in from your sales and paying your bills as far in the future as possible.

One way to get instant cash from your sales is to use invoice finance or factoring. This essentially means that you hand over the task of collecting the cash from your customers to another company. They will generally provide 80% of your sales to you instantly and pay the balance, less a fee, when they have collected the debt.

Of course this is great for cashflow but you are not dealing with your customers directly - some factoring companies may be a little heavy handed so watch out for these.

The best method is to keep on top of all your outstanding sales invoices. Make sure you have negotiated terms with your customers and that payment after 30 days is expected (after all, you are expected to pay your suppliers after 30 days so why not your customers)

Make sure you send invoices out on time. Ensure they are addressed to the correct person in the company - generally the finance department. Get a named contact from the finance department so you can call them prior to when you are expecting them to pay the invoice. Don’t just think companies will pay you when you want - you need to be proactive and keep the pressure on to get the cash from them.

Offer early settlement discounts - say a 2% reduction if they pay their invoice after 30 days and finance penalties if it is late - you need to add anything like this into your contract rather than just add a % fee just because you feel like it.

On the other side is keeping control on your payments. Perhaps you can negotiate better terms with your suppliers so you can pay after 60 days. Don’t just pay late because you may find your supplied won’t supply you with goods any longer or future goods will just be supplied on a cash only basis.

You may try and pay using a credit card because this will give you further time to find the cash - but be careful with credit cards because like personal cards the banks will give you late payment penalties and massive interest rates if you pay late and these costs you and your business and do without.

In general you need cash. To keep the cash flowing you need to be proactive with collecting your sales invoices and paying your bills.