Keeping an eye on Cashflow can not always be given the priority it deserves or needs. Most have to juggle their time and concentration on many other aspects to achieve a successful business, as follows:
Sales – ensure products are as described and that customer needs are met. Staff – where applicable, ensure you recruit the right staff for the various roles. Advertising – devise a marketing strategy/corporate image etc. Licenses and Insurances – relating to vehicles and the relevant business needs. Legislative policies – e.g. health & safety, employment law, waste management. Reports to the various authorities where applicable, i.e Inland Revenue, Companies House. The above names just a few of the areas where time is spent.
Suddenly you find that you are dealing with annoyed suppliers not yet been paid, payroll is due and you know that your cash flow will cope. This may seem very basic but here are some of the ways you can take control and improve your cash flow. Firstly look to see what your business’s current cash position is and then take the following step:
- Where applicable, list all known payments you need to make to suppliers, wages, the taxman, your landlord etc, and schedule the payments by their due date
- Prioritise these payments. There will possibly be some bill payments you can delay and some that you can’t, such as tax bills, payroll, telephone etc
- Look to see if there is any work in progress or any unbilled sales
- Produce an up to date, detailed list of unpaid customer invoices
- By carrying out the above steps you will be able to calculate how much cash is going out of the business and how much cash you can expect to come in
Cash Flow
Review the list of unpaid sales invoices, telephone those customers who have exceeded your payment terms, starting with the largest and oldest of these and work towards the smallest and most recent
Invoicing
Turning sales into cash starts with invoicing – consider invoicing in advance or part thereof, i.e 50% on start of work or on the placing of an order, with the balance on completion. Raise invoices throughout the whole month rather than all at the month-end, this can bring cash in up to 30 days earlier. You could also consider an early payment discount on the invoices encouraging customers to pay you sooner
Cash Out
Go back to your prioritised payment list and approach selected suppliers to negotiate extended terms. If you agree extended terms make sure these are honoured so that you don’t lose your credibility with your suppliers. Negotiate a payment plan with HMRC for any payments of tax, better to agree this up front than to just ignore a payment. You may be able to ask your Landlord if you can pay your rent monthly instead of quarterly in advance
Telephone 01925 413210 or e-mail on margaret@warringtonaccountants.co.uk
The Money Column provided by WatkinsonBlack Chartered Accountants
1st Floor, 264 Manchester Road, Warrington, WA1 3RB
Accountants who care, for clients who matter