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Improving cash flow within your Business
- AuthorAsa Cocker
Business success is determined by cash flow, it’s something companies of all sizes struggle with, but some small tweaks can make all the difference and as we approach the end of the year what better time to make some changes.
It is the money going into and out of a company that will ultimately determine the success or failure of a business. Money needs to come in regularly to pay overheads, other costs, expenses, salaries, taxes, etc.
One of the main reasons businesses struggle with cash flow is late or non-payment of goods and services they have provided. In order to stay on top of it, bosses must know their businesses inside out, especially every cost they are likely to face and be aware of market changes and trends.
Knowing their yearly, monthly, weekly and daily performance and making sure there is sufficient money to pay their own bills when they are due is essential. Customer awareness is also helpful, not only to provide the best service, but to also reduce the likelihood of non or late payment of bills.
The same factors that affect your customers will probably affect their own business, such as bank holidays, the end of the financial year, hikes in utility prices, etc. and that is something to take into consideration.
Many firms shut down over the Christmas period or operate with a skeleton staff so any outstanding invoices might not be paid until the New Year and this can have a negative impact on a business, by simply getting invoices in early this can be addressed.
Paying staff is a must, but an accumulation of unpaid invoices could potentially put a business in jeopardy and wage bills, often the biggest cost, could be cut. Apart from the financial hardship it could put staff in, they would lose faith in the firm and, if it survives, destroy any goodwill they may have towards it.
Many businesses do not have dedicated accounts teams to chase late payers and are usually too busy focusing on doing what they do best to keep on top of late invoices, or are worried about having difficult conversations with clients in case it affects future relationships.
But with 60 per cent of start-up businesses ceasing trading after five years, it is not something that firms can ignore, especially SMEs. That is where our services can come in and often a simple and cost effective letter before action will ensure swift payment.
Helping cash flow and commercial debt:
- keep costs down as much as possible and send timely invoices
- prices should be clearly set out so the customer knows what they will be billed for.
- check invoices for mistakes to ensure there are no delays dealing with disputes. Gentle reminders can also be sent as the deadline for payment approaches.
- make it as easy as possible for customers to pay, whether it is online, via debit or credit card, cash or cheque.
- offer a discount for payments made early. Similarly, they could introduce penalties and charge interest for late payments.
- It might also be worth asking for a deposit upfront, especially if businesses are suppling goods.
If all this fails, firms must be aware of the costs of chasing debts and legal action against a customer and decide how to proceed.
As time goes on, a business must consider whether to raise prices. Bosses might worry about losing customers if they put up prices, but they have to be able to cover their costs to stay ahead of inflation and other financial pressures.
It is also worth investing in their businesses, such as adding new equipment or technology to streamline processes and operate more efficiently. It could even be an investment in accounting software to keep on top of cash flow, or retaining a debt-collection agency to chase payments.
If you need help chasing outstanding invoices to improve cash flow, then please call us on 0161 785 3500 today and speak to Asa or Usman in our Commercial Litigation team.
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers LLP or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.