Cash Flow

Tips to keep the cash flow flowing

The Federation of Small Businesses recently announced this year's Private Sector Performance League Table for late payment. It showed that the agricultural sector had the longest average payment period at 64 days, while financial services came top with 28 days.

Late payment is still a major factor in poor cash flow, and poor cash flow is one of the main reasons for business failures. For small and medium-sized business, the key to success is maintaining a good flow of cash through the business. This enables it to purchase raw materials, new equipment and pay staff wages and other essential overheads.

Here are 10 useful tips to help small and medium-sized businesses maintain healthy cash flow:

Do a check – always conduct a credit check against your customers. Set your customers realistic credit limits and aim to trade with companies that are creditworthy and have a good track record for paying their bills.

Be clear – set out your terms and conditions and tell your customers. Set out your terms of trade – be they seven days or 30 days – early on and include them with order confirmations, invoices and other relevant paperwork.

Do not make mistakes – always check your invoices, because rectifying mistakes can lead to delayed payment. Avoid the return of invoices by addressing them to the proper department and a named individual if possible. Include details of the job, a purchase order number, the correct amount, your business terms and date.

Do not put off invoicing – issue invoices immediately on completion of a job and follow them up with a phone call to check that the invoice has arrived and that there are no queries.

Look at what is going on around you – if your customers are acting differently, hard to get hold of or sending post-dated cheques, this can be symptomatic of bad news in the pipeline.

Exercise credit control – do not be afraid to adopt a follow up system. Issue statements and reminder invoices, and call your customers if they are late in paying.

Take stock – always manage your stock levels, plan ahead and do not hold too much stock. It may be possible to arrange more frequent deliveries from your suppliers so that stock levels can be kept to a minimum.

Manage your suppliers – you could be getting a better deal if you shop around and negotiate longer credit terms and volume discounts.Alternatively, you may be able to agree keener prices by agreeing to pay more quickly than your supplier's normal payment period.

Keep in touch – with everyone, your bank, your suppliers your customers and your accountant. Keep people in the picture and tackle issues early on to ensure they do not develop into business problems later.

Keep the cash flowing – think of other ways of managing money. Investigate options for funding business growth, such as factoring and more flexible sources of funding.

But as with all important business exercises, use the best professional advice and support you can afford to avoid problems with cash flow.