Cash flow is vital to all businesses, as Fred Adler put it “Happiness is a positive cash flow”. It is the single most important factor in surviving in Business today, particularly in today’s current lending environment. Here we have set out some practical advice to help address this constant issue:

Debtors – Getting the money in

• First and most important, put a formal debtor management system in place and delegate to a staff member
• Agree Terms of Credit and include these on all invoices/quotes/contracts.
• Vet all new customers, only give credit to those who can provide references
• Set Credit limits to all customers, these are not to be exceeded without prior approval from Senior Management – this prevents excessive single debtor balances.
• Encourage payments up front offering a discount; also apply a discount to early settlement.
• Monitor consistent late-payers daily and weekly, internet banking facilitates this.

Creditors – Getting the best value

• Set up a clear purchasing process and assign responsibility to a member of staff
• Make it company policy to obtain quotes from 3 companies for products/services, go with the best value
• Evaluate utility costs regularly, checking for better deals.
• It may be cheaper to bulk buy from a single supplier.
• Check with suppliers for any early settlement discount.
• If you cannot pay within credit terms maintain regular contact with your supplier until the situation is resolved.
• Pay electronically in addition to being cheaper this allows you manage the timing of payments.

Stock – Keep it moving

• The cost of maintaining unnecessary high levels of stock will strangle the cash out of any business.
• Know the cost of carrying stock – storage, insurance etc
• Monitor stock levels regularly and maintain minimum stock levels, this will free up cash.
• Watch out for out of date goods and don’t get stuck with “last season’s” stock
• Sell off slow moving stock – sales, special offers

Costs – keeping a tight rein on the costs

• Review all expenses within your business regularly with the objective to reduce them all.
• Target not just the higher costs but the smaller items also.
• Set a goal i.e. reduce all costs by 10%
• Involve everyone – reward employees if their cost centre achieves a reduction
• Watch bank charges, these are hidden costs and meet your lender regularly looking for the cheapest option available.

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