Improve cash management.
Debtors and creditors contain the most important source of cash-flow for businesses operating within B2B Sectors. Improve your management of the debtor-credit balance and you improve the cash position of your business.
- Forecast anticipated cash-flow.
- Measure actual cash-flow.
- Take action based upon variations between forecast and actual.
If you are new to forecasting, or are very short of time, you could restrict your forecasting and monitoring to only debtors and creditors. This will still give you a worthwhile insight and control. Once you master this first level of forecasting you should aim to incorporate all the cash movements within your business.
Start by reducing bad debts.
- Only provide trade credit when you are convinced the customer will pay, and ideally do so within your stipulated period of credit. Protect your business cash with an objective and thorough credit vetting process. This should include fresh applications from potential customers, and extend to periodic reappraisals for all existing customers.
There is no benefit in completing a credit sale unless the invoiced amount is paid.
Your business has done the work or supplied the goods, now it’s time to get paid.
- Issue invoices promptly, and then chase for payment.
- Include sufficient narrative and references on your invoices to avoid the need for queries from your customer’s credit control team about the validity of the invoiced amount or the supply delivered by your business.
- Detail the agreed payment process on each invoice as this will also help to reduce queries. As a final safeguard, include contact details of your team member responsible for each invoice.
- Configure your bookkeeping system to provide email reminders to debtors automatically.
- Management reports should highlight cases within the aged debtor report that merit special attention.
- Make debtor management a daily priority.
- Define and systematically operate a stop-supply policy.
- Ensure your customers are aware of your stop-supply policy.
- Issue early-warning messages to your customers when they are approaching your stop-supply limits.
- Seek to discuss these issues in person: emails and letters are easy to ignore or misunderstand. Discussion can resolve issues and accelerate a conclusion.
- The final stage in debtor management is to define and operate a legal recovery process.
- Don’t threaten: take action.
- If you delay your business might be at the end of the liquidator’s queue.
Suppliers are vitally important to the future health of your business. Treat them as well as you treat your customers and you can depend on them to help you grow your business. Your payments to suppliers have to be managed as diligently as recovery of payments due to your business.
- Don’t let personal pride seduce you into paying your suppliers too quickly. It might make you proud, but you could run out of cash.
- Also, early-settlement discounts will rarely be worth enough to make a noticeable improvement in the debtors-creditors cash balance.
- Think of paying your suppliers each day from the money you have just collected from your customers. Aim for an even flow of cash into and then out of your business bank account.
- Certain creditors require especially careful management. All Government creditors (HMRC, Local Authorities), financial institutions, and landlords must be paid on time, irrespective of any cash-flow difficulties your business might be facing. Set up “cookie jar” reserves for these liabilities. Put the required amount into these reserve accounts every week. When these preferred liabilities become payable you will have the cash available.
Getting practical help to optimize cash-flow
Contact David Charles to discuss how ad+ Chartered Accountants can help you optimize the cash-flow within your business.