Five ways to improve your business cash flow:
Agree price and service level up front
Close the expectation gap between yourselves and your customer. If you agree on the goods or service and the value up front, there is less chance of a disgruntled customer through price, and more chance of getting paid within terms. This will also allow the customer to ensure that the correct amount is placed on their internal purchase order, so when the invoice comes through it will be matched and approved “seamlessly”.
Make it easy to get paid
Ensure invoices are sent promptly to the person or department responsible for approving/paying you. Often, the first time you will know that a customer is not going to keep to terms is when the due date passes, which elongates the payment process further. Some businesses make use of an Electronic Data Interchange (EDI), which not only saves money in operational efficiency, but also enhances the quality of data and improves cash turnaround time. Worth asking the question of your customers?
Explore the potential for on account payments
If a contract spans a number of months, then on account payments are essential. However, many businesses wait until the contract or service is complete before invoicing, and this puts a large amount of strain on cashflow as payments for consumables and staff will have already been paid out. It is not unreasonable to negotiate stage payments, and indeed if it is service provided on a recurring basis, why not consider monthly payments?
Make use of supplier payment terms
Don’t pay suppliers early. The small discount you receive may stop you investing in a higher yielding activity or hinder you when making a payment to other suppliers resulting in a late payment. Furthermore, as we are able to rely on the processes accounting products utilise to automate management and payment of supplier invoices, it does not make sense to pay an invoice early to get it off of the to do list. Supplier terms are an agreed length of time of further financing for your business – just do not be late!
Avoid unnecessary spending
Unnecessary spending can be avoided by utilising modern working practices. Consider cutting down on paper, embracing video conferencing for meetings with customers and suppliers, and generally being less wasteful with consumables.
In distribution or manufacturing businesses one of the most unmonitored costs is the cost to carry inventory. Ensure that your ERP software can link your customer and supplier demand to enable purchases of inventory at the right time. Investment in this area, as well as the expertise of a good analyst can really improve not only your cashflow, but also profitability of the business.