The latest article from our 'How To' series, discusses how you can take back control of the money moving through your business.
How to speed up your cash flow
As a small business, you soon find yourself in the unexpected and unwelcome role of creditor. To win business, you give your customers 30, 60 or even 90 days to settle their bills. So, before money starts arriving in your account, you will be covering your overheads. It can make your life uncomfortable and expensive, particularly in the event of any delays to the payments you are expecting.
Estimates suggest SMEs are waiting for £300bn in unpaid invoices. Or £60,000 each. That is a brake on anyone’s plans for pursuing growth or building an operation.
To maintain your momentum and keep a steady flow of cash through the business, it is worth accepting your role as a creditor and managing it actively:
- check out how risky potential customers look and consider asking for a deposit if you have any doubts;
- know what terms your sales team are offering and set clear limits;
- be clear about who is delivering and insuring any goods;
- invoice promptly and get yourself into your customer’s payments system.
You will then give yourself a chance of being paid promptly and escaping the costs of borrowing to fund any shortfall in your cash balance.
At the same time, you can investigate other techniques for bringing the money you are owed even further forward:
- encourage the use of credit cards, so you receive the cash immediately and your customer gains an extra 30 days;
- raise a trade loan against a specific contract or negotiate a credit facility to cover any gaps that occur;
- sell your invoices to a discounter who will take on the risk of non-payment and forward up to 85%-90% of the cash to you now;
- use any lines of credits that larger customers, such as supermarkets, offer to settle any invoices in advance at a discount
Alternatively, you could bring in a factor who will manage all your outstanding credit for you. In return for settling your invoices promptly, they will charge you a combination of a regular fee and interest.
Once the money is in your account, not someone else’s, you are in a stronger position to fund your next round of growth. You can also save all those hours every week chasing payment and worrying about what happens if your cash runs out.
SMEforGrowth Editor 04.08.16