How to avoid a Cash Flow problem

To survive in business you need strong Cash Flow – the problem arises when there is a delay in getting paid by your customers. Although you have agreed on a 30-day term for payment they have over run and it is now maybe 60 or even 90 days overdue, your suppliers are demanding payment and are threatening not to send your next badly needed delivery – so what do you do?

Speak with your customer

Find out why they are not paying – is there a query on your invoice which has not been resolved? Are they not aware of your credit terms and you have not been pro-active in chasing payment? Or do they genuinely have a cash flow issue themselves? Whatever the reason if you are not speaking with them you are not solving the problem. So get on the phone, find out what is happening at their end and when exactly will they pay you.

Internal systems

Establish internal systems to manage your financial information and Cash Flow and at the earliest possible moment introduce a financial management software system which will give you up to the minute reports and information. If in doubt about what system to use get advice from your accountant on what is right for your business now and in the future which will integrate with your other financial systems or otherwise it will be a very expensive exercise to sort out in the future.

Processes

Even though you are desperate to make sales there is absolutely no point in supplying a company who will delay with payment or worse still may never pay you at all. Not every business owner is as honest as you and will run up a stream of bad debts preying on unsuspecting suppliers. So don’t be a casualty, you cannot and should never have a bad debt and the fault may come back to your own lack of judgement or systems to check out the credit worthiness of a potential customer. From day one establish a strong Credit Management process, if in doubt speak with a Credit Management expert or enroll on a training programme on how to manage your credit. It will pay for itself over and over again.

What can you do immediately to improve Cash Flow?

If a company got paid on time for sales the instant they delivered, they would never have a cash flow problem. Unfortunately, that is not always the case, but you can still improve your cash flow by managing your Receivables. The basic idea is to improve the speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash. Here are specific techniques for doing this:

• Offer discounts to customers as an incentive to pay their invoices quicker.
• Ask customers to make deposit payments at the time orders are taken.
• Require credit checks on all new non-cash customers.
• Get rid of old, outdated inventory for whatever amount you can get rather than have it sitting in your showroom or warehouse unsold.
• Issue invoices promptly and follow up immediately if payments are slow in coming.
• Track Accounts Receivable to identify and avoid slow-paying customers. Instituting a policy of cash on delivery (c.o.d.) is an alternative to refusing to do business with slow-paying customers and still retain them as a customer.
• Take immediate action if you have any inkling that there may be a problem in getting paid rather than delaying the inevitable.

Invoice Discounting

Rather than wait for payment why not avail of Invoice Discounting facility where your cash will be released almost immediately without the need to approach your bank for a loan or overdraft facility and no long decision delays.

At Oxmantown Commercial we specialise in working with SME business owners and start-ups providing cash flow solutions – why not give us a call today on +353 1 230 0866 or e mail info@oxmantowncommercial.ie