TOP TIPS FOR BOOSTING YOUR CASH FLOW AND BUSINESS IN 2021

Ian Gass, CEO at Agitate

 

Many small businesses are still dealing with the disruption caused by the pandemic. Improving financial performance is most likely to be at the top of agenda, and a good place to start is reviewing cash flow. No matter what the product or services a company provides or the size of the business, cash flow still remains king.

Research has shown that 38% of small business owners who have suffered cash flow problems have been left unable to pay debts. With 1 in 7 small business owners having been left unable to pay employees because of cash flow issues, this equates to a huge 2.2 million people in the UK not being paid on time.

 

The importance of positive cash flow

Profit has traditionally been seen as the most important measure of an organisation’s financial performance. However, the focus is increasingly shifting from the income statement to the balance of cash inflows and outflows. Prioritising profit levels reflect long term fiscal health, but it does not necessarily mean that a business can pay its bills on time and survive in the short term.

Ian Gass

Sudden drops in demand prove how keeping an efficient cash flow balance is essential, and can expose shortcomings of currently used solutions. When reviewing your cash flow, you need to look at ways to get more money coming in and better manage the money that is going out. Here are a few ways to improve cash flow management and see positive changes in a short period of time.

 

  1. Efficient forecast

It is important to be able to compare actual income and expenses with those that are in the pipeline, as it helps to determine which area of business is under performing or generating unnecessary costs. Start by looking at your projected income and expenses for the next three months, don’t wait until you receive a bill to realise there are not enough funds to cover it. An easy way to overcome this issue is a free cash flow template available online.

 

  1. Terms and Conditions review

Making sure that T&Cs are clear and comprehensive not only provides your business with a protective layer, but also makes customers understand when and how the payment is expected, and the process and penalties for late payments. That’s why regular checks and reviews of existing agreements prevents businesses from potential loses. It is also good to use reward tactics to encourage customers for prompt or early payment such as discounts or free shipping.

 

  1. Payment terms

Payment terms that are understandable and realistic is clear T&Cs in place. As it creates a contract with suppliers and obliges the organisation to pay on time, it is important to match these terms wider operation processes. For instance, if you have 14 days to pay your suppliers, but your customers get 30 days to pay you, a problem of late payments will be inevitable. To avoid damaging relationships with suppliers, you should consider an extension of the terms or reducing the credit period for your clients. It is worth taking deposits, asking for payment in advance or on receipt.

 

  1. Invoice management

Another method that can quicky improve cash flow is sending invoices promptly and ensuring they are accurate. Any mistakes will simply require queries to be resolved and it will take longer to receive payment. In addition, it is important to remain persistent at following up late payments and moving the money to the bank as soon as possible. Some clients will always need chasing and, without a follow up, they will hold on to the cash as long as possible.

 

  1. Payment options

Making it easy for clients to pay gives businesses the best chances of being paid quicker. While accepting card payments might be common place, there is a high risk of fraud. For example, in 2019 £620.6m was lost in card fraud in the UK. Also, it can be expensive to process and often leaves an organisation to wait days to receive the funds. Using a free bank-to-bank payment app means businesses can send payment requests from mobile phone straight to customers via email or messaging app (such as WhatsApp).

In that case, the consumer will receive a message with all the information they need to make the payment instantly. They click the secure ‘Paylink’, which directs them to their online banking app and all the relevant information is displayed such as your name, the amount to be paid and a reference. The transaction needs then authorising with their bank and the money moves instantly from their account to yours.

 

  1. Cost reduction

If there is too much money going out that a company can’t afford, business owners need to think of ways to reduce those expenses. There are a few questions to help understand where money can easily be dislocated:

Is there software or equipment that you are paying for that you don’t use? Can overhead costs such as utilities and administrative expenses be reduced? Are card transaction fees putting an unnecessary pressure on cash balance? If so, it can be eliminated with a bank-to-bank payment app.

Although profit might be seen as the ultimate goal for companies of all shapes and sizes, sustaining positive cash flow provides vital foundations on which a company can grow. By using the right tools, business owners can not only get paid faster and more securely, but also improve customer experience, reducing the transaction to a quick QR scan. Making a few smart changes to the existing balance sheet can have a big impact and future-proof an organisation in no time.

 

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