While we are entering new worlds of Bitcoin and other new currencies, the old adage “Cash is King” is still very much in vogue. Many businesses are experiencing growth in today’s market, however employment costs and overheads are rising meaning that numerous SME’s are still finding cash flow challenging. To assess the issue, business owners need to look at how fast their customers are paying them as opposed to how fast they are paying their suppliers. Several businesses may find that they are paying their suppliers up –front or within 30 days, while their own customers are taking 45-60 days to pay.
Therefore while turnover may be increasing businesses may find that cash is becoming sparser. So what can be done? Cash flow solutions will be unique to each business, however, the following measures should be considered:
- Project your cash flow for the year ahead so you can see when your cash flow is likely to be at its worst and plan accordingly.
- Review your credit terms with customers or new account holders to assess if your credit terms can be aligned with that of your suppliers.
- Introduce a policy whereby any small invoices are paid Cash on Delivery (COD) or by visa. Negotiate better credit terms with your supplier to help bridge the gap.
- Review credit limits and where customers reach the limit, ask for a payment on account before more credit is given.
Review your aged debtors listing regularly and ensure debtors are called regularly. Use of invoice discounting where a finance provider may loan you a percentage of your debtor invoices (typically 80%) each month which will unlock cash where debtors normally take up to 90 days credit. The finance provider will charge a fee for the service and may wish to be involved with the collection of the debt. However, there are many providers in the market today who can offer more flexible arrangements depending on the industry sector. Smooth your monthly cash flow by using fee finance or standing order/direct debit options to pay insurance, accountancy and other annual bills. VAT and payroll taxes may be paid monthly by direct debit to Revenue and no interest will apply once 90% of the annual tax liabilities are paid within 12 months. Review your overdraft interest rate to assess if perhaps a term loan would be a cheaper alternative. Review your overheads, can you switch broadband, electric or fuel provider to get a better deal? Postage can be dramatically reduced by using email where possible. Small changes can make a positive impact on your cash flow to allow you to concentrate on growing your business.