Turnover is vanity; Profit is sanity; Cash is King….
But what does that mean exactly? Well, it’s not simply a question of how much you sell, or how much margin you add, it’s how much cash you have available to you. There have been many profitable and seemingly successful businesses which have failed because their cash flow has been compromised and as a result, they have not been able to pay bills on demand.
There are a number of ways to keep on top of your cash flow, and one of the most vital is credit control.
Effective credit control measures need to be put in place right from the start. Before you grant any credit, all new customers should be thoroughly checked – and then re-checked once a year, don’t forget, circumstances can easily change, so don’t hamstring yourself by granting overly generous credit terms.
If you issue invoices, ensure they are sent out promptly and chase all payments, the minute they are due. You should also consider charging interest on any late payments, because these can really hurt your cash flow.
Another idea, is to provide incentives for early payment, perhaps a small discount off their next order. When things get tough, consider whether debt factoring (i.e. selling invoices to a third party) or invoice discounting (i.e. drawing against unpaid invoices for a percentage) would ease your cash flow. If the customer refuses to pay, you may have to take action to recover the debt and you should consider how you will manage this.
The typical signs of cash flow issues are an ever-increasing overdraft and difficulty paying bills. Make sure your financial records are accurate and updated regularly, and carry out a financial health check of your business at least once per quarter.
You need to act quickly and decisively if you are to stop short-term cash flow problems spelling disaster for your business, so if you’re not sure how to manage this within your business, or you don’t have the time it needs, why not let us help? Mad About Bookkeeping are very experienced in managing credit control, we can ensure that your debtors are kept in check regularly, thereby maintaining a strong and healthy cash flow for the good of your business. Want to know more, just give us a call!