Cash is King!
The Importance of Cash Flow
Cash is the life blood of any business and is the key to survival and growth. In these challenging times it is often used as a key indicator of the health of a business. Many businesses can survive for short periods without profit or sales, but not being able to pay staff salaries or important suppliers can often signal the end of the business.
It is for this reason that it is imperative that all companies, whatever their size, must have effective cash flow. This guide shows you how to manage your cash flow to beat the recession so you are in brilliant shape to capitalise when the economy picks up.
The simplest and easiest way to start improving your cash flow is to speak to Funding Solutions UK Ltd. We can quickly and easily talk you through the steps below and could turn your outstanding invoices or other business assets into cash within days.
At Funding Solutions we are in a unique position to help small and medium businesses. As we are an independent financial company we can use the whole market to find the cash that your business needs. This means that you get the best possible deal from the lender best placed to meet your needs. We can help you save time, cut costs and prosper.
By using Funding Solutions you have nothing to lose as our service is free. So whether you are looking for new facilities or looking to reduce the cost of your existing facilities spend 5 minutes and call us on 0845 250 4040.
Top tips to beat the crunch
Always remember cash is king!
This straight forward seven point plan will help you effectively manage your cash flow.
1. Produce a cash flow forecast
This allows you to understand the peaks and troughs of the cash in your business. We recommend that you produce a cash flow forecast for 12 months and check this at least quarterly, monthly or weekly, if things are getting really tricky. A cash flow forecast doesn’t need to be complicated and can be completed on a spreadsheet. The cash flow forecast will highlight any trouble spots.
Your forecast should include:
- Salary payments
- Payments
- Rent, rates, insurance lease payments
- Utility bills
- Stock payments
- Interest on bank loans
- Opening bank balance
- Closing bank balance
2. Chase debts
Receiving cash is not an automatic process that always follows delivery or completion of a job or project. It will not just appear in your bank account. It has to be requested, tracked, chased, secured and then banked. You really need to have a stringent process to ensure you turn your business into something that pays the bills every month.
The Bank of England estimates that only one in two companies agree their payment terms in writing. It is good business practice to let customers know when you expect payment, that way you both know where you stand. Be prompt with delivery of your goods or service; ensure everything is as requested and that a delivery note or timesheet is signed, then chase debts promptly when they fall due.
3. Extend credit terms
Ask your key suppliers for a discount for prompt payment or longer payment terms, they will probably be happy to help and it is a simple way to provide valuable cash flow.
The Federation of Small Business publishes league tables of the average payment terms of public limited companies and their large private subsidiaries. This helps smaller companies to compare their payment times.
4. Use an invoice finance facility
Factoring or invoice discounting is “selling” your sales invoices (accounts receivables) to an invoice finance company. This is typically done at a discount that can be a fraction of 1%. The advantage is that you get all or part of the cash immediately once the invoice is issued. There are different types of invoice finance facilities to suit your business needs.
You may wish to use a factoring facility that helps you by providing credit control or you may wish to operate a confidential invoice discounting facility where you customers are unaware of any involvement.
The advance rate is the amount the factoring company advances you when a sales invoice is raised; this is normally around 85% of the invoice value. The remaining balance (less factoring company interest costs) is paid once your customer pays the invoice.
Whatever you choose it is imperative that you use the lender best placed to meet your needs. They all have very different requirements, criteria and capabilities. By using Funding Solutions you ensure that you avoid common pitfalls and set up a facility that meets the needs of your business.
5. Lease rather than buy equipment
Consider leasing fixed assets like equipment, vehicles or buy them using hire purchase rather than paying with cash. This will allow you to spread the cost of the asset and even the VAT you pay on the asset. By doing this you can preserve cash reserves that provide a buffer for your business in difficult times.
If you own key assets, you may even be able to do a sale and leaseback to a finance company to get an immediate cash injection. Asset re-finance is a specialised area and only certain lenders will consider this.
If you are looking to finance new assets or refinance existing assets call us today on 0845 251 4040.
6. Order and carry less stock
Japanese businesses pioneered the ‘just in time’ (JIT) management system, where stock is delivered just as it is required for the next stage of production. This requires very slick processes and great organisation and will help save you money. This may not be directly applicable to your business but the principles of JIT could really help your cash flow management.
Minimising the amount of stock you hold will mean you have less cash tied up.
7. Credit check customers or credit insure
Always credit check customers at the start of the trading relationship and review them at regular intervals, especially if they place a large order or request different payment terms. A leading credit information supplier has calculated that more than 90% of companies grant credit without first obtaining a credit reference.
This is a simple process and there are several websites you can use to find out powerful information to gauge the credit worthiness of your customers.
You may also take out a credit insurance policy that can protect you against bad debts from customers. A bad debt not only impacts on profits but also impacts on cash flow.
You should also, where possible visit major customer premises, don’t just look at their website. It helps you manage fraud and general bad debt risk.
If you would like to chat about how Funding Solutions UK Ltd can help manage your cash flow call us on 0800 251 4040 or visit our website to find out more.
