Practical steps to better cash flow: Strengthening your business’s financial position

Maintaining a healthy cash flow is vital for the smooth operation and long-term success of small and medium-sized businesses (SMEs). The movement of money in and out of your business should be balanced and predictable to avoid financial difficulties in the future. To help businesses overcome the challenge of improving cash flow, here are some practical steps that can be implemented to strengthen your business’s financial position. By following these recommendations, you can take proactive measures to enhance your cash flow management.

Forecast Your Cash Flow

Creating a detailed cash flow forecast is an essential step in understanding and managing your business’s financial health. By projecting your income and expenses over a specific timeframe, such as a week, month, or quarter, you can gain insights into when money is due to come in, where it originates from, and when it will be paid out. Regularly compare your forecasted figures with actual results to identify any discrepancies and adjust your forecast accordingly. This process can uncover opportunities for better cash flow management, such as optimising idle cash or identifying potential cost savings.

Review Customer Payment Terms

Late customer payments can significantly impact your cash flow. To address this issue, consider reevaluating the payment terms you offer. Some practical steps include shortening payment terms from, for example, 30 to 14 days, replacing “Payment Due Within 30 Days” with “Due Upon Receipt” on invoices, or requesting partial payment before commencing work (based on customer/industry considerations). By implementing these measures, you can encourage timely payments and reduce the risk of cash flow disruptions.

Negotiate Payment Terms with Key Suppliers

Just as your largest customers may seek extended payment terms, it’s crucial to ensure you negotiate favorable payment terms with your key suppliers. These mutually beneficial arrangements can provide your business with greater flexibility and cash flow advantages, helping you maintain a healthier financial position.

Encourage Online Payments

Offering online payment options to your customers can streamline the payment process and improve cash flow. By providing a user-friendly online payment function, you can eliminate delays associated with traditional invoicing and waiting for payments. This convenience can encourage customers to settle their bills promptly, resulting in improved cash flow for your business.

Use Credit Carefully

In certain situations, businesses may require additional funds to bridge cash flow gaps, cover unexpected expenses, or invest in stock ahead of busy periods. When considering credit options, carefully evaluate the available types of lending based on factors such as the amount, duration, and frequency of credit needed. Seek financial advice from experts to select the most appropriate solution for your business. It’s essential to consider the cost, flexibility, and repayment terms associated with different credit options to ensure they align with your cash flow requirements.

Check Customers’ Credit Histories

Depending on your business’s nature, it may be prudent to assess the creditworthiness of customers before entering into transactions where payment is not made in advance. To minimise the risk of payment defaults, you can take the following steps:

Use Business Credit Checking Agencies: Consider obtaining credit reports from reputable agencies, such as Experian, Equifax, Creditsafe, Graydon, or TransUnion (formerly Callcredit), to assess the creditworthiness and reliability of potential customers.

Review Consumer Credit Reports: If you’re dealing with a small business with a sole owner, checking their personal credit ratings through Experian, Equifax, or TransUnion can provide insights into their payment behaviour and promptness.

Enhancing cash flow: How Beavis Morgan can help SMEs

Cash flow management is crucial for SMEs, and it’s vital for business owners to have access to specialist support and guidance. At Beavis Morgan, our SME business experts can help structure your business with cash flow and profit forecasting, enabling you to measure performance and capitalise on opportunities. By working with a pre-determined plan, we assist you in avoiding unexpected challenges.

Through our partner businesses, Moorfields Commercial Finance, we offer additional support in sourcing and restructuring debt finance for SMEs. Through Moorfields Advisory, we also provide assistance in resolving issues that may impact business performance and success, as well as finding innovative solutions for distressed businesses and individuals.

If you’re seeking ways to enhance your business’s free cash flow and require assistance in preparing a funds flow statement and annual budget, our team is ready to help. Contact your usual Beavis Morgan partner or email to discuss your needs and unlock the potential for maximum success in your business.

We are committed to providing SMEs with the expertise and resources they need to navigate cash flow challenges and thrive in the competitive business landscape.