20th July 2012

Simple tips for better cash-flow

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Cash is the life-blood of any business. In the past few years we have seen many profitable businesses fail on account of cash-shortages or difficulty accessing finance. The quarterly Credit Watch survey from ISME found that SMEs are waiting an average of 71 days to be paid.

The good news is if your business has made it this far through the recession, you are in a strong position to capitalise on a less-crowded marketplace when the economy eventually improves.

Here are a few tips that will help bolster your company’s cash position.

1. Cash-Flow Forecasts

It is essential that you prepare a cash-flow forecast for your business. This will give you time to prepare for impending bills and allow you to budget accordingly in the lead-in time. As each month passes new expenses will become apparent.

Roll-forward your cash-flow forecast each month to reflect the reality of your business’s position. In twelve months time you will have an accurate cash-flow forecast that will help guide your business and reduce nasty surprises. If you anticipate a cash shortage at a time when you will have bills due, approach suppliers and reach an arrangement before the problem arises.

2. Accept Service as Payment

Look at what services a client could provide to your business in lieu of payment. If you have a client that provides print solutions, ask them to handle your print requirements to the value of the outstanding invoice. This means you will get paid an invoice that you may not have and you won’t need to spend valuable cash on your printing elsewhere.

3. Accept Payments on Your Website

Contact your web-designer and ask them to build a payment section on your website that accepts credit cards and PayPal. Email all invoices to your customers with a link to the payment section of your site. You may not hear “the cheque is in the post” quite as often!

4. Accept Part-Payment

Cash-flow is extremely tight for most companies. Your client may not be in a position to pay you the full amount that they owe. Encourage them to pay what they can with the balance at a later date. Getting paid something is better than getting paid nothing.

5. Get Clients on Direct Debit

Make it an attractive proposition for clients to set up a direct debit that regularly pays your company a certain amount of money. Incentivise it by giving people small discounts. Explain it will help their cash-flow if they continually pay a small amount over the course of a year, rather than a large sum in one go.

Once the direct-debit is set up, your chances of getting paid regularly are greatly increased. The bank will charge the account holder a fee if there are insufficient funds to make the direct debit. This means that account holders will set a direct-debit up at a time in the month when they know they will have funds available. Getting paid regularly on a specific date makes cash-flow forecasts more accurate.

6. Examine How you Invoice Customers

If you satisfy either of these two conditions, the “cash receipts” basis can apply:

· annual turnover or less than €1 million

· 90% of sales to unregistered customers and not businesses

This means you can invoice a customer with no obligation to pay the V.A.T. until you receive payment. You can also claim V.A.T. inputs on purchase invoices received before payment is made.

7. Make the Call

This is a painful task but imperative to maintaining good cash-flow. Ring your slow-paying clients and ask them to keep you in mind. Use humour to diffuse tension and get home your message. Suggest setting up a direct-debit or a payment plan.

8. Assess Your Outgoings

Most businesses have cut the bulk of discretionary expenses. It may be a useful exercise to review any remaining expenses such as client entertainment, bonuses and travel. This could provide a much-needed injection of liquidity into your business.

9. Reduce the Agreed Price

Get an idea of the financial position of the company that owes you money. Maybe the only way of receiving any payment is to take a heavy-discount on the agreed price. If you are prepared to negotiate and discount, your odds of being paid something greatly increases.

10. Refer Business to Clients

Look at your network of contacts and try to refer work to the company that owes you money. This promotes good-will and will shorten the time you wait to be paid. If a company is struggling to pay you, ask them to refer business to you also. More clients should help improve cash-flow.