1. Ensure bookkeeping is accurate and up to date
Managing business cash flow needs to start with having reliable information on hand by ensuring that your accounting books are complete and hold accurate records of all cash inflows and outflows. Without this, it is almost impossible to know the financial state of your business at a glance or at a point in time.
2. Negotiate better payment terms with your customer
Do not be afraid to ask your customers for shorter payment terms to ease cashflow strains. Other ways might be to ask for an upfront deposit or a progressive payment schedule.
If you are unable to negotiate better terms, consider an invoice finance facility. It allows your business to get paid earlier on your outstanding customer invoices so you do not have to guess when or wait to be paid. This is done by selling invoices to a financier for a small fee. This way, you can choose when to get paid and how much to draw on your invoices. You are then in full control of your cash inflows.
3. Robust invoice process
Issue invoices to your customers promptly according to agreed terms with your customers. Do not wait or procrastinate as this can delay the processing and payment of your invoice and negatively impact your business cash flow.
Read our previous blog here for more information on how to create, issue, and follow up on invoices to help you get paid faster.
4. Rigorous collection process
Ensure you have a stringent collection process to minimise late payment and the probability of bad debt. This will help ensure you are always paid for the goods or services you have already provided and maintain strength in your business cash flow.
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5. Build up your cash reserves
Having cash set aside for a rainy day is essential. By building up a cash reserve, your business will be in a better position to weather any unexpected events. This could be a slowdown in the economy, a rise in interest rates, or perhaps a sudden growth spurt in your business that requires additional working capital.