Top tips to boost your cash flow

14. Cut out the excess VAT – scheme 2

You could also consider HMRC’s Cash Accounting Scheme for VAT. Normally, you pay VAT on your sales regardless of whether or not your customer has paid you. But using cash accounting, you don’t need to pay VAT until your customer has paid you. So if your customer never pays you, you never have to pay the VAT on that bad debt. This can significantly help your cash flow, especially if you’ve got slow-paying customers. Again, this is only for businesses whose estimated VAT-taxable turnover is less than £1.35m, but it’s worth looking into.

15. Check your product mix

Are some of your products just sitting around for months, waiting to be bought? If yes, you might not be offering the right mix of products. Instead of focusing on products that create the highest margins, consider faster-moving lines, which don’t tie-up your cash flow for very long.

16. Information is key

Know what’s happening. You’d think this is a no-brainer, but you’d be shocked at how many bosses don’t actually know what is going on in their accounts. “Make sure you know where every penny in your business is coming from or going to – or, more importantly, ensure that you have the ability to find out,” says Sarah Shillingford, entrepreneurial business partner at Deloitte. “A good financial system will pay for itself in no time.” 

17. Credit check clients

Remember that when you give your clients 30 days to pay, you’re essentially offering them a 30-day loan. You wouldn’t think twice about being asked to submit to a credit check if you were applying for a loan, so why should it be any different for your clients? Credit checking can help you identify and filter out clients that are likely to have problems paying their invoices – and will potentially hurt your cash flow. The Forum for Private Business offers its members free access to business monitoring services. Graydon, Experian and Dun & Bradstreet all offer SME packages, too.

18. Use alternative finance tools

Factoring and invoice financing can be strong tools to smooth over unexpected dips in cash flow. You’ll receive up to 90 per cent of the value of invoices you raise within 24 hours of raising them. The factoring partner will then chase the invoice when it becomes due, and pay you the remaining value, less a fee. Interestingly, factoring is also increasingly being used by businesses that want to seize an opportunity for expansion quickly when they’re unable to secure credit from a bank.

19. Dust off your crystal ball

Forecasting is an integral part of managing your company’s finances, and performs a vital role when it comes to a healthy cash flow. “Every business will experience peaks and troughs,” says FinanceHeads’ Raines. “Whether they’re related to VAT payments, corporation tax or other lump sums, the key is to work out where the troughs are and how severe they’re likely to be. Otherwise you could find yourself lacking cash when you really need it.”

20. Offer credit card payment

Cheques can “get lost” in the post and take a long time to clear. So offer credit card payments to your customers, says Richard Alberg, founder and chief executive of MyWorkSearch. “Many businesspeople have company cards and a proportion will settle this way, resulting in swift payment to you.”

21. Does it bring in money?

Never stop looking at ways to cut costs in your business. You’ll be surprised how much excess fat the business builds up, feeding off your cash flow, says Mandy Brooks, founder and MD of Chazbrooks Communications. “Go around the business and ask whether it saves money or brings in income. If not, you don’t need it!”

22. Put clients on long-term retainers

Try getting clients to sign up to long-term retainers of between three and five years. The client gets a long-term fixed fee (and no nasty surprises added to their bill), and you get security and can forecast your income for years to come. “This is particularly important for impressing banks and securing funding from investors,” says Simon Hancock, FD of data storage firm ControlCircle.

23. Renegotiate with your suppliers

Make sure you regularly review all of your prices with your suppliers, says O-bit Telecom’s Breith. “A lot of businesses don’t do this, but it can be a great way to reduce overheads and free up cash, especially if you haven’t asked your supplier to review its prices in a while. It’s also worth asking for extended credit terms – if you’re a loyal customer and have always paid your invoices on time, then your supplier should oblige if they want to keep your business.”

24. Offer a discount…

One of the most common reasons for cash flow problems is late payment. It’s also the main cause for insolvency among SMEs. But Kim Farrell, corporate finance partner at CBHC Chartered Accountants, says you shouldn’t get angry with debtors – they’re more likely to pay people they like. “Instead, offer an incentive such as an early settlement discount. It has to be meaningful to make a difference, though. One per cent isn’t enough.” One way of covering the cost of the discount, says Farrell, is to factor it into your prices from the start, so you receive the benefits and customers “feel they’re getting a good deal”.

25. …or launch a competition

Reward prompt payment by turning it into a competition. For example, the names of punctual payers could be put in a draw each month and the winner could be rewarded with dinner for two. “It may sound far-fetched, but we tried it ourselves with excellent results,” says CBHC Chartered Accountants’s Farrell. “For an investment of around £1,000 per year, we can advertise a feel-good incentive to all our clients and strengthen our relationships while improving cash flow. It’s a win-win.”

26. Split your invoices

If a customer is querying part of an invoice and refusing to pay anything until their issue is answered, ask them to pay the part of the invoice that isn’t in dispute. Corporate turnaround specialist Anthony Holmes explains: “If your clients refuse on the basis that they can’t authorise the invoice for payment in part, then credit the original invoice and re-submit two substitute invoices – one for the amount not in dispute, and the second for the queried sum. You can then ask your customer to pay the undisputed balance immediately.”

27. Reconcile, reconcile, reconcile

Check and cross-check. As well as monitoring and tracking all your expenditure and profit forecasts on a regular basis, make sure you’re using the right numbers. “A finance process is vital to control, monitor and allocate expenditure and income. Make sure the whole team is fully up to speed and on board with this process and understands, in detail, the reasons behind it. But always cross-check to ensure all your figures are correct,” says The Lounge Group’s FD and queen of cash flow, Sara Gil. “There’s nothing worse than realising a formula is incorrect!”

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