Advice:10 simple tips for a healthy cash flow

By , published on 17th January 2011

Many people will say that cash is the ‘lifeblood’ of a business. This is because without cash flowing in to the business, none can flow out. Here’s how to make sure you keep your cash flow healthy:

  1. Invoice promptly – as soon as you’ve finished a job, send in the bill. Don’t wait until the end of the month to raise your invoices;
  2. Get paid on time – your invoice can get ‘lost in the system’ of a big organisation and overlooked in a busy small one. A polite call when the money’s due increases your chance of getting paid on time;
  3. Pay slowly – it makes sense not to be too quick to pay your bills. Over time you get to know whom you can delay and whom to pay on time;
  4. Avoid direct debits – many of your regular suppliers, particularly energy suppliers, like to be paid by direct debit. Pay when it suits you, not others!
  5. Sell more – obvious really, but the higher your sales the more likely you are to have money in the bank;
  6. Spend less – the flip side of selling more is that your costs go up. Make sure you renegotiate what you pay for stuff if you find yourself buying more. It all helps;
  7. Keep work flowing – work in progress can kill your cash flow. You’ve sold lots, you’re working hard and just can’t get things out of the door as fast as you once did. You’re now buying faster and invoicing slower!
  8. Avoid bad debts – some people are easy to sell to as they don’t have the money themselves to pay. Maybe they’re on ‘stop’ with their usual supplier so come to you.
  9. Buy ‘just in time’ – and don’t carry more stock than you need. Try to order things as you need them;
  10. Have a sale! – De-clutter your business by selling off old stock, damaged goods and anything else you no longer need.

Credit checking

Lots of business advisers will encourage you to credit check new customers. It’s also good practice to set a credit limit for each customer. This means you can limit your exposure to bed debt. It can also mean you remember to ask for the money before accepting the next order.

It’s easier to credit check incorporated companies than sole traders or partnerships. That’s because they have to file annual accounts. These are available online via a number of subscription service credit referencing agencies. You simply sign up to be able to search online.

The problem with credit checking is that it is based on historical data. That means a company can look OK but actually be far from able to pay its debts.

Simple ways to check if your customers are likely to become a bad credit risk include:

  • Read your local business newspaper as these often list Court judgements;
  • Ask for credit references from existing suppliers;
  • Suggest they pay via credit card as these give you the money now and your customer the option of paying the card company later.

Remember: a deal’s just a promise until the customer’s money is in your bank.

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Robert Ashton

About Robert Ashton

Robert Ashton is an entrepreneur, campaigner and business author with three business books in the top 10 recommended for business on Amazon. He knows how enterprise can liberate, empower and strengthen people and communities. Robert is always focused on the end goal but treads lightly as he goes – that’s why he’s called the barefoot entrepreneur.

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