Managing Your Cash Flow

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Top tips to boost your cash flow

9 Mins

Staring at next month’s payroll with anxiety? HMRC squeezing you on your VAT request? Cash is still tight for many small businesses but your peers have ideas:

1. Invoice as soon as possible

Let’s start with an obvious one, which all too many businesses neglect. Your cash flow could be much better off if you bill throughout the month, as soon as projects are completed, rather than just sending out monthly invoices. “For companies that have clients on retainers, there’s no reason why you can’t regularly bill earlier in the month,” says Caroline Billington, director at part-time FD business FinanceHeads. “Even better, if you can arrange to invoice a client at the beginning of each month for that month’s work, then you’ve effectively improved your cash flow by 30 days.”

2. Win more clients

Get more customers on your books. Again, this seems obvious but it’s a healthy cash and cultural change. “If you rely too heavily on two or three main clients and they pay late – or not at all – the impact on your cash flow is massive,” says Victoria Pooley, MD of direct marketing agency The Data Partnership. “Make sure you have a large client base, even if it’s made up of several smaller clients.”

3. Make friends in accounts…

Memo to your finance team: build a relationship with the accounts payable department of each client so that you know their finance process and payment terms inside-out. “Find out when and how and to whom you need to invoice,” suggests Sara Gil, FD of The Lounge Group. “The better the relationship, the more likely they are to respond to you, give you the information you need, and pay you on time.” 

4… and your bank

Be friendly with your clients and debtors, but make sure you have a good working relationship with your bank, too. “This means that if you’re in need of a temporary overdraft to cover your cash flow, they’ll have plenty of warning and you know that they’ll be able and willing to offer this to you,” adds Gil.

5. Stay on top of it

Be disciplined – cash flow is the most important element in your business. “You have to take a hands-on approach to cash and keep your forecasts updated, knowing what’s coming in, what’s going out and what the time frames are,” says Samantha Sida, co-founder of media group Limited Space. In other words: don’t ignore your cash flow – force yourself to look after it.

6. If you don’t ask, you don’t get

Many companies are reluctant to chase payments, but you’ll be surprised how easy it is to get your invoices paid. “Don’t be afraid of picking up the phone,” Jennifer Raines, director at FinanceHeads, says. “I came across a company recently who still had invoices outstanding from 2009. I encouraged them to call their client and ask for the money, and they were paid straightaway. If you get in the habit of tracking and following up all your invoices, this will drastically help improve cash flow.” But make sure you chase by phone rather than by letter – credit reference agency Graydon estimates that it’s about 80 per cent more effective.

7. Lease instead of buying equipment

Your business may need a new IT system and you may well look at your sales records and decide that you have the spare cash to spend on a new server for your office. But think twice before parting with the pennies, as they may be needed further down the line. Consider leasing instead of buying equipment outright – there may be a trough coming your way and you don’t want to get caught out. “My mum always used to say ‘never buy what you can lease, lease what you can rent, rent what you can borrow, or borrow what you can find in a skip’,” says Alex Pratt, founder of £5m-turnover Serious Brands.

8. Hire a great credit controller

Your credit controller’s main role is to ensure your invoices get paid, and can play a huge role in boosting your cash flow. “A good credit controller is invaluable for making sure that you get paid on time by all your customers,” says Dave Breith, founder and CEO of £20m-turnover O-bit Telecom. “They need to be able to speak to a customer’s credit controller in much the same way a salesperson would. A persuasive but friendly manner will go a long way and, most of the time, customers will pay when asked nicely.”

9. “If you fail to plan, plan to fail”

“An unplanned invoice can lead to you going under,” says Limited Space’s Sida. “It doesn’t matter how good you’re looking at the moment, if you haven’t got the cash to pay your bills, you won’t survive.” She’s right: long gone are the days of guaranteed back-ups – you can’t rely on your bank to bail you out. Whether you use a pen and paper, Excel, accounting tools, or whatever, get planning and forecast your cash flow for the short and medium term, updating your forecasts regularly.

10. Offer direct debits

Offering a direct debit (DD) is probably one of the quickest ways to boost your cash flow, and is helpful to everyone. With a DD, you’ll get your cash more quickly, your customers don’t have to worry about the administrative burden, and everyone is better protected from fraud. Plus, it’ll help your financial planning, as you know exactly when each customer’s DD will hit your account.

11. Clear that excess stock

Many businesses hold too much stock or, to put it another way, have too much money tied-up in stock. Clear out old and slow-moving stock if the cash generated could be put to better use. “Don’t get unnecessarily tied into purchasing agreements so, if your cash flow worsens, you have the option of cutting projected purchases,” says Graeme Bursack of accountancy firm Goodman Jones.

12. Try e-invoicing

If you’ve tried it, chances are, you’ll swear by it. E-invoicing can help you cut costs, improve efficiency, and stay on top of your cash flow, according to Gareth Horton of data-provider Market Location. “Paper invoicing is increasingly inefficient, expensive and error prone – it’s affecting cash flow for finance departments across Britain,” he says. Instead, as it’s online, e-invoicing gets you paid quicker and cuts down on errors. Check out companies such as Basware, Kofax or OB10 for SME software packages.

13. Cut out the excess VAT – scheme 1

VAT is one of the biggest regular outflows of most businesses, so it’s worth looking at how VAT-efficient you are, says Goodman Jones. Under standard VAT accounting, you must complete four VAT returns a year – any VAT due is payable quarterly. But if you’ve got an estimated VAT-taxable turnover of less than £1.35m, consider signing up to HMRC’s Annual Accounting Scheme for VAT. This allows you to spread VAT payments evenly over nine months, with a balancing payment or refund at the end of the year, helping you to avoid large cash flow fluctuations.

Read the rest of our top tips to boost your cash flow on page 2

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