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One of the foremost reasons why businesses go under is because their cashflow is mismanaged. Successful cashflow management should be a company’s priority during a prolonged recession, however solid the business may be in other areas. Here are some tips on effectively managing your cashflow in difficult economic times:
1. Plan Ahead.
Prepare cashflow projections for next year, next quarter and, if you’re on shaky ground, next week. An accurate cash flow projection can alert you to trouble well before it strikes.
2. Stay alert and be proactive.
The key to managing cash shortfalls is to become aware of the problem as early and as accurately as possible.
Financial service providers are wary of borrowers who have money today. They would much rather lend to you before you need it, preferably months before.
When the reason you are you are caught short is that you failed to plan, a provider is not going to be as interested in helping you out.
3. Cashflow problems can often be self-inflicted.
Companies who send out incorrect invoices often find that their customers end up returning an invoice and requesting a new one. Make sure all your invoices are correct before they are sent out to make sure your customers do not use this as an excuse for not paying you.
4. Chase overdue invoices.
Ensure you have a strong process for chasing up your invoices. Often businesses do not have a credit controller or system to chase up overdue invoices and the task is either ignored or left to staff who don’t have the time, experience or motivation to prioritise the job.
5. Balance credit terms vs cashflow needs.
Balancing credit terms vs cashflow needs is something many businesses struggle with. Be sure to tell your potential customers upfront about your credit terms – before you provide your product or service.
6. Look out for bad debt or consider bad debt protection.
Bad debt is defined as accounts receivable that will likely remain uncollectable and will be written off. Bad debts appear as an expense on the company’s income statement, thus reducing net income.
It is also impossible to avoid incurring any bad debt, but the more you can anticipate its likelihood, the more profitable you will be.
7. Know your customers.
Some of your customers will pay on time, every time – others will be persistent late payers. Speak to their finance department regularly. The more information you have, and the better relationship you have with them, the easier your payment collection process will be.
8. Don’t always associate higher sales with better cashflow.
If large portions of your sales are made on credit, when sales increase, your accounts receivable increases, not your cash. Meanwhile inventory is depleted and must be replaced.
Because receivables will not usually be collected until at least 30 days after sales, a substantial increase in sales can quickly reduce your cash reserves.
9. Consider using an invoice finance provider.
These are financial service businesses that can pay you TODAY for your invoices that you may not otherwise be able to collect on for weeks or even months. You will eliminate the hassle of collecting and be able to fund operations without borrowing.
10. Sell and lease back assets. You may be able to raise cash be selling back assets such as machinery, equipment, computers, phone systems and even office furniture.
For free, no obligation invoice factoring quotes call 0844 846 7475 and speak to one of our independent advisors.
"Target Business Assist have provided our business with a new invoice factoring system that has dramatically improved our cash-flow position and flexibility with our clients..."
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