Luisa Grey, a director at Eazipay Ltd, one of the UK’s largest Direct Debit processing companies, knows a thing or two about managing cash flow. Here she highlights some top tips around managing the cash flow in your business and shares some insights from recent SME reports.
While reading through a raft of new reports on SMEs and cash flow, I came away thinking how they just underlined the amount of unnecessary time and money is being spent on managing company cash flow.
While its true that technology has enabled businesses to simplify many aspects of their day-to-day operations, the daily cash flow management is still a sore point for many UK small businesses. A recent survey found that SMEs are collectively losing over £8.72 billion every year as a result of the time taken to complete weekly finance related tasks. This still astounds me.
Another study revealed that more than six out of 10 business owners regularly, or occasionally, draw upon personal finances like a personal credit card to support their business. Again, something that really makes alarm bells ring.
With a final statistic stating that 15% of SME start-ups saying that they found cash flow to be an issue, we really do need to focus on some avoidance tactics to preserve cash flow and keep businesses financial healthy.
It’s worth highlighting that it is critical to make sure that, alongside your profits forecast, you also have a cash flow forecast. Review it regularly to ensure you have the best toolkit to equip your business for managing payments and dealing with the unexpected hurdles that all businesses face from time to time.
Here are my top pointers to instilling a healthy financial business in terms of cash flow:
1. Appoint someone to keep an eye on the cash
When the levels fall below a critical amount (which could be anything from £1,000 upwards depending on the size of the firm) they need to let someone in authority know.
2. Make paying simple for your customers
I think we can all agree that writing a cheque is tedious for everyone involved. Electronic payments are much quicker and the money will be in your bank account sooner. Customers can also be offered early payment discounts to encourage them to pay within a timeframe which works for you.
3. Negotiate longer-term deals & business partnerships
How can you make your business stand out? Think about differentiating your services from your competitors by offering alternative billing arrangements, including the use of classic retainers and monthly payment schedules, to enhance your competitive edge.
4. Consider putting your customers on to Direct Debit
This will make life easier for everyone and really stabilise your cash flow. Most of the time, automated processes are just better (how much time do you spend chasing invoices?) and can leave you to spend your time more efficiently.
5. Invest in effective alternative financing solutions
This could involve options like invoice or supply chain finance. Do not rely excessively on loans and investments – this will affect your ability to manage cash flow effectively.
6. Don’t be a late payer yourself
Not only will it reflect badly on your company, you could incur unexpected costs and charges. Signing up to the Prompt Payment Code and, where possible, working with other companies that are signatories to the Code is another quick and easy step to take. The Prompt Payment Code sets the gold standard in payment terms and it’s members have made a commitment to lead the way in payment practices.
Finally, if you are having a cash flow crisis…
7. Talk to your bank
They might well be able to help you out with some short-term funding and give you sound advice on how to avoid a similar crisis in the future.
It’s true that if a company has poor cash flow for a sustained period, it is at grave risk of going under, no matter how profitable it looks on paper. While the business may have an impressive looking sales forecast or even invoiced generated – if the customers are not paying (on time or at all) – your business will not survive. If your business does not get it’s funds in on time to meet obligations like employee salaries, rent, raw materials or other supplies…again, its unlikely to survive for long.
However, if you take steps today (like some of the above), you can start making sure you cut down on the stress and set your business up for continued success.
A big thank to you to Luisa for coming in as a guest blogger for us, I hope that those top tips will help with structuring your cash flow better. Remember, you can always give us a call and we can help put the systems in place to help you streamline your time on efforts to keep the money flowing.
EaziPay are one of the UK’s largest and fastest growing Direct Debit processing companies. They provide regular Direct Debit collection and processing services to thousands of SMEs and corporate organisations in a wide range of market sectors throughout the UK, Europe and beyond. For more information visit www.eazipay.co.uk.