Late-paying customers, overstocking and seasonality can all have an impact on your cash flow. There are ways to reduce the risks they pose without compromising on customer service or the smooth running of your business. Here are our top tips about keeping control of your cash flow.
Why is cash flow important?Even the most successful businesses can struggle if cash flow isn’t balanced. Late payments mean essential bills aren’t paid. That results in penalties, which in turn means more debt. Even a full order book is no defence against a late payment – if you can’t afford to fulfil the orders, they won’t save you.
A simple cashflow forecast can help you identify times when your business might need some extra financial support, and budget for them accordingly.
Tips for improving your cash flow
Keep on top of invoicesBe clear about your payment terms from the start, and always ensure invoices are dated, with clear statements of terms and the amount due. Don’t delay or be shy about the paperwork - invoice your customers regularly. The sooner you get invoices out, the sooner you'll get paid.
Make payment easyA small incentive could be enough to get customers to pay within your terms. Offer a slight discount for early payment. Or accept card payments, allowing customers to spread the cost over several weeks if they have to.
Start on the right footOnce you’ve gained a new customer, find out as early as possible how they’d like to pay. Some are happy to pay immediately, others may prefer to pay by instalments or request a period of credit. It’s also worth running a credit check.
If you take all these steps and still find payments are overdue, ask your customers why they haven't paid, and when they’re likely to. You’ll need to be firm and persistent as well as polite, and tough enough to take the matter further if it can’t be resolved with the customer. Provided you’ve delivered what you promised, the law is there to help..
Be polite but persistent
More and more businesses are using business credit cards to settle their bills. Card payments typically take three to four days to reach you, rather than 30 to60 days with cash and cheques via invoicing. Your payment is processed in order or despatch, so the risk of non-payment is much lower. You’ll spend less time chasing for payment (and taking cheques to the bank).
Make the most of our card payment systems
Cutting costs doesn't have to mean reducing standards. There are a few simple things you can do. Use a business credit card, for example. With 0% interest on purchases for six months (from account opening), a
Barclaycard Select credit card
(26.4% APR representative, variable) could help you to manage your costs and cash flow easily.
Control your costs
It’s also worth thinking about negotiating with landlords and suppliers – most will be keen to keep your business, which puts you in a strong position. And if they’re not willing to be flexible, it may be time to start shopping around.
If late payments are seriously affecting your cash flow, you might want to think about services that could help. Cash flow finance could help to smooth out problems by giving you earlier access to cash that would otherwise be tied up in invoices. You can approach this option from two different angles:
- Factoring – you issue invoices to your customers in the normal way, with instructions to pay the factor. The factor then pays you a percentage (up to 85%) within 24 hours and handles all further credit control. Any further payments, less a factoring fee, are made when your customer pays them.
- Invoice discounting – an invoice discounter will advance you up to 80% of your outstanding sales ledger. You’re still responsible for collecting payments and credit control. When you're paid, you pay the invoice discounter back, plus charges, which are usually made up of a fixed fee, a percentage of the invoice value and interest on the amount originally advanced.
Watch out for warning signs
Your cash flow, or working capital, keeps your business ticking over. It's affected by debtors, creditors, stock and cash. One of the main reasons businesses fail is because their working capital dries up. So here are some warning signs to look out for:
- Customers who can't pay you. This will restrict the flow of money coming into your business.
- Customers who don't pay you on time. Make sure you set out clear terms of trading in a contract, right from the start. If you're unsure, ask your solicitor to help.
- You don't know the timing of invoices and payments. A bookkeeping software package can help with sending invoices promptly and calculating when payments are due.
- Relying heavily on your business overdraft facility. An overdraft can be helpful for getting through a short-term squeeze, but your account should be in credit most of the time.
- Buying too much stock. Holding large amounts of stock can eat into the cash you have available and increase the risk of selling at a discount, or even taking a loss.
- You don't have payment chasing processes in place. Make sure that you invoice the right person at the right address so you get paid swiftly.
- You haven't got a plan for quiet spells. Seasonality affects some businesses more than others. But remember you'll still have to pay fixed costs like rent and heating, no matter how many sales you make.
How we could help your cash flow
We offer a variety of business tools to help you keep track of invoices and payments. We’ll also provide more detailed information about staying on top of your cash flow, with advice from our Barclays Business Workshops and Barclays Business Managers who will work with you to try to find the best ways of achieving your business goals.