Cash flow health is, at heart, similar to physical health. Deprive a human body of necessities like air, exercise, food and water and it deteriorates; deprive a business of overheads, employees, inventory and continuous revenue, and it suffers. Medium and large enterprises have richer resources and can absorb the occasional bout of ill health, but how do small businesses avoid this and improve cash flow health? By freeing up cash tied up in unpaid invoices, for starters. The Finance Physicians at Touch Financial offer these six handy tips:
1. Cash flow analysis
Late payments to small businesses have reached a £36.5bn high in the UK, with some companies waiting up to 180 days for payment. Diagnose the problem by conduct a cash flow analysis. What systems do you currently have in place for issuing, processing and chasing up invoice payments? It’s essential to check that these vital processes are working optimally.
2. Preparing invoices
Medication always comes with strict instructions. So, too, should invoices. Deliver them with terms and conditions laid out formally, with deadlines stated as clearly as possible. Nowadays many businesses issue invoices in PDF form via email, giving customers the option of paying early. Always ensure that your customers’ contact details have been updated in your database.
3. Understand customers’ payment cycles
Research your customers’ payment cycles. Just as the human body has an inner clock that rests and resets itself every 24 hours for optimal performance, so too do most companies have a set date every month for settling their invoices. Knowing when this is will give you the flexibility to time invoices and reminders according to when your clients are most likely to wake up and pay up.
4. Automatic invoicing
The marvels of modern technology mean that sophisticated tools are readily available to help calculate the amount of exercise or nutrition required by a human body and offer much-needed reminders. Small businesses should follow suit and use specialist software to organise invoicing activities. Good programmes let you schedule customer details as well as payment reminders that are automatically emailed to customers.
5. Setting up debt recovery protocol
Set reminders for regular check-ups. Automated invoicing helps small businesses institute debt recovery protocol (e.g. reminders to contact a client the day after payment is due, when to use a third party to collect debts, etc.).
6. Discounts and rewards
Ask for all or part of the payment before goods or services are issued. Offer customers early-bird schemes for prompt payment. Reward programmes for dutiful customers can also encourage repeat early payments. And, just as treating your body well leads to long-term health benefits, so too does cultivating customer loyalty improve your business – and your cash flow.
Your cash flow health check may have diagnosed some problems with your current invoicing system. But what if your business could bypass the invoice payment process and cash in immediately? Invoice financing makes this possible, with lenders offering you 80-90% of the invoice value up front while they claim the rest of the debt on your behalf. This improved cash flow will give your business the freedom to flourish.
At Touch Financial we use our comprehensive industry knowledge to diagnose problems and provide businesses with bespoke financial solutions, including factoring, invoice discounting, asset finance and more. For more information, fill in our contact form or call us on 08453889725.