Never allow your monthly business outgoings to be higher than its income. The less you spend, the healthier your cash flow. Set specific budgets in key areas and stick to them. Don’t waste money buying things your business doesn’t need. If your business does need something, negotiate firmly to try to get best-possible value from all suppliers. Assess your business costs every month and try to find savings where possible.
Your prices must be set at a level that maximises your profit without putting off customers because they’re too high. Good knowledge of your customers and competitor prices is essential when setting your own prices. Many business owners are hesitant to increase their prices, because they fear losing customers. However, your profitability and cash flow will suffer if your costs increase and you don’t put up your prices.
The more credit you can get from your suppliers and the more time you’re given to pay them, the better for your cash flow. You must be a firm but fair negotiator; you need to build up strong supplier relationships. Carefully consider the cash flow implications if a supplier asks you to spend more to get more credit. It may not be worthwhile.
Your customers will, of course, try to get as much credit as possible and more time to pay you, but both can have serious cash flow implications. Where possible, avoid granting credit to new customers until your relationship is better established. For higher-value sales and longer-term contracts, getting a part payment upfront or agreeing staged payments can ease your cash flow pressures.
Sending invoices out late is a key cause of small business cash flow problems. However, the longer you take to send your invoices to your customers the greater the pressure on your cash flow. As soon as your product/service is supplied/delivered to your customer – issue your invoice. If affordable, offering a small discount for prompt or early payment can be good for your cash flow.
It can be difficult when so many things compete for your time and it’s something you may hate doing, however, the longer you leave chasing up late payments, the worse it will be for your cash flow. Shortly before an invoice is due, email a polite reminder to your customer. If you’re not paid on the due date, email another reminder. If there’s no response, call them up to politely request immediate payment. Be tactful, because they could be waiting for payment from their customers.
Sage Business Cloud Accounting is online accounting software that provides anytime, anywhere access to essential small business tools. Its features help you manage cash flow and send and track invoices, all through the cloud or via a mobile app.
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