10 Strategies to Improve Cashflow
With the summer holiday break coming to an end it is likely that cashflow is one of the issues currently presenting a business challenge.
1. Establish Clarity – what you can Measure, you can Manage
If you mix personal and business finances then start the New Year by resolving to eliminate the practice, or at least keep it to a minimum. By all means use personal funds to support business activities, but do so in a structured and transparent way, including paying yourself. It is only when you begin to have clarity over your business cashflow that you can begin to improve it.
2. Look within the business
Don’t just blame your customers for being slow payers, look at your business too – control the controllables. You have limited influence when it comes to when customers pay their invoices but full control over when those invoices are raised. Don’t wait until the end of the month – send your invoices out as soon as you can, certainly no later than when the work is complete.
3. Vet customers a little more
You are running a business, if your business model operates on invoicing, you don’t have to extend credit to everyone who walks through the door. Vet your customers, maybe do credit checks for bigger contracts, think about references and ask about the customers’ cashflow – their cashflow will affect yours.
4. Improve Collections Processes
If you are regularly chasing debtors, or experiencing frustrating levels of write off, you need to improve your systems in this area. Try new strategies, or if you find the whole process too time consuming or adversarial consider engaging outside help. There are a number of agencies who are proven to improve debt collection, and in a manner that frequently improves customer relations, at a very reasonable price.
5. Team Angles
Empower your team to resolve client issues fast. Give them levels of authority in order to do this, including budgets. Happy customers pay on time, and often customers with a problem fixed pay even faster. Make resolution of customer complaints a team KPI. Consider bonuses for complaint resolution. Get creative about ways to remunerate the team in non financial ways.
6. Cloud Solutions
There are now a host of ways to measure, monitor and improve invoicing and credit control using cloud based accounting solutions. Xero is a good example of this. Regularly being able to access your receivables ledger from anywhere, and being able to invoice from anywhere can only benefit cashflow management.
7. Invoice Terms
Do your invoices have a ‘due by’ date? Consider instead using the term ‘payable on or before’, you will be surprised how many people pay before rather than on the due by date. And don’t send out statements, they are a tacit admission that you will tolerate a position where customers have debts beyond their settlement dates. Consider a discount for early settlement.
Regularly check you are getting the best prices from your suppliers, and take advantage of payment terms. If you have a good payment history consider approaching suppliers for discounts as you are likely to be a valued customer. Buy in bulk to access discounts but make sure you are not eroding or negating the discount by incurring borrowing costs or other stockholding costs.
9. Inventory Management
Keep a close eye on stock turnover and ensure this is managed proactively.
When was the last time you had a good pricing review, drilling into mark ups and costings on a line by line basis across your range of products and services. Remember that there are no rules in pricing – only the market. So it might be that by sticking strictly to a cost plus method you are leaving money on the table. Remember that a 10% increase in prices is unlikely to result in a 10% loss of customers, particularly if your customer service is strong.
©2013 Munro Accountants