Managing cash flow effectively is really important for the success and sustainability of any business. Whether you’re a small startup or a well-established company, maintaining a healthy cash flow ensures you can cover your expenses, invest in growth opportunities, and navigate financial uncertainties.
Here are some practical tips to help you improve your cash flow and keep your business ticking along smoothly!
Pay suppliers slower or on credit terms
One of the simplest ways to manage your cash flow is by taking full advantage of your supplier’s credit terms. Paying suppliers on the due date rather than immediately can free up cash for other business needs.
Here’s how you can do it:
Understand payment terms: Get clued up on the credit terms your suppliers offer. Common terms are Net 30, Net 60, or Net 90, meaning you have 30, 60, or 90 days to pay, respectively.
Negotiate better terms: If possible, negotiate longer payment terms with your suppliers. This can be especially effective if you have a good payment history or are a significant customer.
Use automated reminders: Set up reminders to ensure that you pay on the due date which will help you avoid late fees while maximising your cash retention.
Encourage customers to pay promptly with direct debit solutions
Getting your customers to pay on time is of course essential for maintaining cash flow. Direct debit solutions like GoCardless can help to make this process smoother:
Simplify payments: Direct debit allows customers to set up automatic payments, reducing the risk of late payments.
Improve cash flow predictability: Regular, predictable payments help you better forecast and manage your cash flow.
Offer incentives: You can encourage customers to use direct debit by offering small discounts or other incentives.
Chase your debtors
Outstanding invoices can severely impact your cash flow, that’s why it’s important to have a systematic approach to debt collection:
Regular follow-ups: Establish a routine for following up on overdue invoices. This can be through emails, phone calls, or even personal visits if necessary.
Use accounting software: Tools like Xero offer features for tracking overdue invoices and sending automated reminders.
Enforce penalties: You might want to consider implementing late payment penalties to encourage timely payments.
Offer early payment discounts
Offering a discount to customers who pay their invoices early can be an effective way to accelerate cash inflows:
Set clear terms: Clearly state the discount terms on your invoices, such as “2% discount if paid within 10 days.” Make sure that you put this in writing too so that nothing can get lost in translation.
Highlight savings: This is pretty obvious, but make sure that you make the paying early savings opportunities clear to customers. This can be particularly appealing to trade customers who deal with large invoice amounts.
Monitor impact: Don’t forget to track how this strategy affects your cash flow and adjust the discount rate if necessary to ensure its beneficial.
Automate invoice reminders
Automation can significantly improve your invoicing process, plus it can help you to free up your team to focus on other areas of your business. You can use automation in many different ways, including:
Use invoicing software: Software like Xero allows you to set up automated invoice reminders. These reminders can be scheduled to go out before and after the due date.
Customise messages: Personalise your reminders to maintain a professional tone and include all necessary payment details.
Track responses: Monitor which customers respond to reminders and which do not, allowing you to adjust your follow-up strategy as needed.
Raise invoices as soon as possible
The quicker you invoice your customers, the sooner you can get paid. Delaying invoicing can lead to delays in cash inflow:
Invoicing on completion: Raise invoices immediately upon completion of a project or delivery of goods as this sets the expectation for prompt payment.
Use mobile solutions: Mobile invoicing solutions enable you to send invoices on the go, helping you to further reduce delays.
Set clear payment terms: Clearly outline your payment terms on the invoice to avoid any confusion.
If you have questions about any aspect of your finances, please get in touch with the Trinity team. We’d love to help!
