Cash Flow – The Life Blood of Business

It doesn’t matter if you have million dollar contracts and hundreds of thousands sitting in the receivables, if you don’t have the money to pay as and when your debts fall due the result is going to be the same. There is a lot to be said for the cash economy from the point of view of being able to sleep well at night – if you can’t pay for it now then you don’t get the goods or service. This is however not the environment that most of us work with, so it is important to remember a few pointers that may help your business through tight cash flow times.

  1. Be prepared – sit down and plan what your cash flows are going to look like for the next six months and constantly revisit and update your targets. If you know the cash flow is going to be stretched, being aware of this ahead of time will give you more options regarding how you might handle it (banks, business loans, invoice trade finance, etc.).
  2. Agree clear payment terms – if you are not clear on your own payment terms then it is difficult to track your cash flow. Be aware of when invoices are overdue and act accordingly, have a clear process to manage this, and it will be of benefit to both you and your clients.
  3. Invoice quickly – if you are going to wait two weeks to invoice a client then it is probable that it will not be paid for a further two weeks as a minimum. Invoice promptly by email and you can have a record of send/received.
  4. Make getting paid as easy as possible – within legal circles there are still payments by cheque – online payments are quick and easy – using things like PayPal which can be linked to the client’s bank accounts can also be a good idea for certain businesses.
  5. Use technology to manage cash flow – online accounting packages enable you to link with bank accounts 24/7 to see payables, receivables and balances on a real-time basis on your computer, smart phone or tablet. This will allow you to manage your cash flow wherever you are.

Finally, it is better to focus on cash flow rather than profits; most businesses fail having the business profit forecasts in place and not managing the cash flow. For start-up businesses especially, you are better working with reliable quick paying customers initially, even if it means slimmer profit margins in order to strengthen your cash flow.