The health of any business is a mixture of three factors, cash flow, revenue and costs. Many businesses are great at looking after turnover and profit, but take their eye off the ball and forget about cash flow. Many a company with a healthy order book and business model has gone bankrupt as a result of poor cash flow. Here are twelve ways of maximising your business’s cash flow.
1. Shorten your payment terms
Easy to say, less easy to apply in practice! If you change your payment terms to 14 days instead of the more normal 30 days, then you are likely to get paid in 30 days rather than 60 days. If you can negotiate it with your customers or clients, what about payment before dispatch of the goods, or payment on receipt of the goods?
2. Have rigorous systems and processes for credit control
Good credit control is not a mystery science. Good credit control requires discipline and someone systematically talking to late paying debtors. In addition, before you engage a new client or major customer, it is worth performing credit checks. I know of one small training company that went into liquidation after an outstanding debt of £50k was not paid. If there is a hint of poor credit worthiness ask for payment up front — or a large percentage of payment up front
3. Phone when sending an invoice
When you are sending an invoice to a client (or customer) give them a call to tell them they are expecting it. This gives you an excuse to speak to your clients, and may circumvent any problems with the invoice. It prompts your client to get your invoice sent to the accounts department, rather than letting it languish in their in-tray.
4. Send your invoice via e-mail (with a return receipt)
An invoice is less likely to get lost in the post if it is sent via e-mail. Make sure you put a read receipt on the invoice so you can track that it has been delivered and opened.
5. Offer a discount for prompt payment
Incentivising (or penalising for late payment) your customers for prompt payment, may help your customers/clients pay you quicker.
6. Put Bank details on your invoice
Ask your customers and clients to pay you via BACS — and encourage your clients to do this by putting your Bank account details on the invoice, and specifically stating you want payment via BACS.
7. Invoices paid via BACS are paid quicker than cheque.
BACS payments do not involve The Royal Mail or the three to five working days for a cheque to clear. You will probably get paid at least one week quicker if you get paid via BACS.
8. Issue invoices promptly
The quicker you ask for payment, the quicker you are likely to get paid. Not rocket science… Late invoices are more likely to be forgotten about — the sooner they are issued, the more likely they will get paid.
9. Do cash flow forecasts
Many businesses have gone bust by not managing their spending versus the amount of money they are receiving. A cash flow forecast, completed monthly, will give you a good guide to what you can afford to spend
10. Monitor credit worthiness of major debtors
Do keep an eye on your major debtors. If you sense that they are having problems or struggling, be pro-active and ask them how (and when) they intend paying your bill.
11. Maintain a dialogue with major clients
The more that you are talking generally with your clients/customers, the less likely they are to sit on one of your invoices. You will also get a sense of if they are running into problems…
12. Don’t have all your eggs in one basket
Even if you follow all of the advice in this article, there will be times when you are unlucky and one of your clients will go bust. By making sure that no one client is more than 25% of your turnover, you will minimise the risk to your own cash flow.
Heather Townsend is the Chief Coach at The Efficiency Coach, and Founding Elder of ‘the executive village’. The Efficiency Coach, an award-winning business, works with professional advisors and business owners to help them achieve better business results for less effort. The executive village brings together business owners to help them solve their business challenges.
About Heather Townsend
Heather Townsend is a brand ambassador for the Practice Excellence Programme, and the Founder of ‘The Accountants Millionaires’ Club’. In 2015 the ICAEW decided she was the number one online influencer for the accountancy profession. She is the author of 4 books, including The Go-To Expert, and ‘How to make partner and still have a life’ (co-authored with Jo Larbie).
Heather is always up for a challenge. Perhaps that is why she has built a track record of helping accountants grow the size of their practice by 50-200%, often in under two years. Often helping them make partner or equity partner in the process.
Heather is a high profile member of the accountancy profession in the UK. She has worked with over 300 partners, coached, trained and mentored over 2000 professionals at every level of the UK’s most ambitious professional practices. Heather's clients have included: 7 out of the Top 10 UK practices, including all the Big 4 firms.
In 2016 her and her team of coaches have coached:
1) 7 people successfully to partner
2) Professionals from all of the Big 4, from every major continent in the world
As well as helping accountants make partner, she still spends 40% of her time helping small firms, typically under £1m GRF:
1) Create profitable revenue streams from advisory services and reduce their reliance on revenue from compliance services
2) Radically increase their profitability, even if they are a cloud based practice, often helping them achieve a net profit margin of 40%+
3) Double or even triple the size of their practice within 3 years
4) Win bigger and better clients
5) Grow the right team around them so they stop working stupidly high hours and spend quality time with the people they care about
Her articles appear regularly in the UK national and trade press, including The Financial Times, Accountancy Age, The Sunday Times and The Guardian. Heather is also in-demand for her speaking and has recently returned from the South African Accountancy Academy conference.