Managing your cashflow

‘Cash is king’. It is a cliché – and like many clichés it is true. The reason why most businesses fail is that they run out of cash to pay their bills. They run out of cash because they have failed to keep on top of cashflow.

To keep in control of cashflow businesses need to have the right management information and systems in place – and to act on warning signs before they become problems.

Of course all businesses have systems in place. It is just that in an economic downturn these may need to be tightened, particularly as 8 in 10 businesses say they are seeing an increase in the number of their customers paying late.

Remember being paid – and paid on time – is not a given

• If you are worried about the customer paying on time – or at all – consider stage payments or even cash on delivery to reduce your risk of bad debts
• Set your terms of business before doing business – and put them in writing. You will not be paid in 30 days unless your customers know that’s what you expect
• Do credit checks before doing business – and monitor late payments. If companies are taking longer and longer to pay, find out if there is a problem. Do not wait until they leave you with a bad debt
• Encourage prompt payment. Consider charging interest on late payments (your legal right on debts outstanding after 30 days) or – if your profit margins allow – offering a discount for prompt payment
• Invoice promptly – and once again make payment terms clear
• Check the customer is happy – there may often be a reason for late or non payment. Never give a customer a reason not to pay
• Make it easy for them to pay by offering as many ways of getting paid as you can. BACS payments are fast and attract lower bank charges. Or a standing order can be used if they pay the same amount regularly. With cheques your late payers can always use the excuse “it’s in the post”
• Contact customers to check they received the invoice and then find out when they are going to pay


“The key thing is certainty – knowing when you are going to get paid so that you can adjust your cashflow forecasts accordingly. If you know a customer is going to take 75 days to pay, you can plan ahead. If you expect payment with 30 days and the payment takes 75 days your business risks running out of cash to pay its outgoings – and that is when businesses run into difficulties.”
Phillip King, Director General, Institute of Credit Management.


Smart credit management is…
• Ringing on day 40 to check you will be paid on day 60

Lax credit management is…
• Waiting until day 65 to ask why you were not paid on day 60

Getting it right
• Many businesses concentrate on getting orders in, but getting paid should also be a priority

Communication is key

• At times like this you need to cement your key relationships with customers – as well as your suppliers and your bank – as this could be vital to the survival of your business. It is not just about keeping customers happy. It is about working together and understanding their needs. Good communication will also help you to find out if
they are having problems that could impact on your business.


[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]

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