Seven ways your business can improve cash flow

*Photo by Tima Miroshnichenko from Pexels*

It’s literally impossible to overstate the importance of cash flow for any business. It’s what pays staff and suppliers. Without it, a business simply cannot function. This means that ensuring a smooth cash flow should be a top priority for any business. Here are seven tips to help.

Here to explain further, Peter Scully, Marketing director at Rogers Spencer covers the seven ways your business can improve cash flow.

Get on top of your invoicing

Make sure that you’re sending your invoices to the right contact. Ask your client to safelist your domain. This will help to ensure that your emails get through no matter what changes their IT team makes. Make sure that your invoices contain all the information your client needs to confirm that the amount is correct. For example, if you have a purchase-order number or a job number, reference it.

Try to get clients onto direct debit

Up until fairly recently, charging through direct debit was reserved for larger companies. Now, however, it’s much more accessible to smaller businesses. In the UK, the two main players in the SME space are GoCardless and Stripe. Both integrate with the major accountancy packages including Xero, Quickbooks and Sage.

In the context of cash flow, the main advantage of using direct debit is that you choose the date on which your customers are charged. They only have to take action if they have an issue with an invoice. Direct debits also have very attractive transaction fees.

Encourage your clients to use purchase orders

Purchase orders are essentially pre-approved purchases. When an invoice is submitted, the recipient simply has to check if the associated purchase order has been fulfilled and if the amount matches what was agreed. If the answers to both questions are yes and yes, then the invoice is approved and the vendor gets paid.

Purchase orders aren’t suitable for all situations. For example, they can only be used for purchases that are both predictable and easily quantifiable. When they do work, however, they can make life much easier for everyone.

Offer an incentive for prompt payment

In many cases, a business’ greatest challenge isn’t customers who can’t pay or won’t pay. It’s customers who pay when they get around to it. This isn’t necessarily through disorganization let alone malice. It’s just a reflection of the fact that your invoices are probably just one of many, many things your billing contact has to deal with.

Offering an incentive for prompt payment gives your contact a reason to prioritize organizing your payment over other things they could be doing. If your budget isn’t up to offering a discount for prompt payment, try to find some other form of incentive. For example, you could run a monthly prize draw for people who pay their invoices within a certain time.

Follow up swiftly on non-payment

If you’re using accounting software, you almost certainly have the option to send automated reminders if customers are late paying invoices. This function can be very useful but it does need human oversight. There is no point in sending out one automated reminder after another. You need to have a cut-off point after which a human will get involved and find out what is going on.

Credit check your customers regularly

Hopefully, you are already credit-checking your customers when you start working with them or, at the very least, before you start offering them significant credit. Remember, however, that a company’s credit status can change over time. This means that it’s highly advisable to credit-check your customers periodically.

Look at your internal processes

You are a customer as well as a supplier. Make sure that you are buying astutely. For example, these days, it often makes a lot more sense to lease assets (physical or digital) than to buy them outright. Also, keep actively reviewing your business model to see if there are any options for squeezing more value out of your business. In particular, look at your pricing structure and whether you are maximizing revenue from upselling, cross-selling and add-ons.

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Peter Scully

Marketing Director at Roger Spencer

Peter Scully is the Marketing Consultant at Rogers Spencer who are Chartered Accountants in Nottingham who can provide businesses with tailored accountancy services.