14/04/11

By Bibby Financial Services

With the economy still recovering from the aftermath of the recession and the government cuts starting to hurt UK businesses, it is now more important than ever to maintain a strong and steady cash flow.

Cash flow is without a doubt, the lifeblood of business – while profit margins and revenues are important, if there is no cash in the bank to pay monthly bills, meet staff wages or purchase raw materials or new equipment, the business will suffer.

Every firm has different financial pressure points caused by late payment, seasonal peaks or sudden large bills. Managing cash flow is about being prepared and dealing with these effectively. Cash flow management is vital if a business is to survive and succeed. Yet very often, it is overlooked. Many business owners get embroiled in generating and fulfilling sales, disregarding factors such as financial controls and forward planning. As a result, businesses suffer and survival is threatened.

Below are our golden rules on cash flow management:


•Carry out stringent credit checks – in this volatile climate it is crucial that you always run a comprehensive credit check when entering into any business relationship. Finding out about a new customer and using credit agencies to check details is an accepted and standard business practice and one which shows due diligence on your part. It is important that you are able to trust the companies you trade with and know that they have a reliable track record for paying their bills

•Implement clear Ts & Cs –if your business terms are seven days or 30 days, make it clear. Set out your terms of trade early on so that every party knows where they stand. Include them with order confirmations and invoices to both existing and new customers


•Always check your invoices – it may seem obvious, but ensure that your invoices are accurate, with the correct name, address and department of the individual you are contacting. Furthermore, if possible include details of the job, a purchase order, the correct amount, your payment terms and a date. Don’t give your customers an excuse not to pay!

•Be efficient, send invoices straight away – once the job is complete, get the invoice sent and follow up with a call to check it has been received. This prevents a cash flow bottleneck, where you have had a host of invoices to send and are then waiting for customer payments to be made

•Be firm with credit control – late payment is not something you should settle for, don’t be afraid to implement a strict follow-up system, issue statements and send reminder invoices. If you still don’t get a reply, give your customers a call

•Manage relationships – be aware of your customers behaviour, are they acting differently? Are they hard to get hold of? Are they sending you post-dated cheques? It is these signs that can indicate something may be wrong – and will give you a better chance to react accordingly

•Take stock – look to the future, don’t order stock you don’t need. Your cash flow will benefit from not having money tied up in goods. Investigate the possibility of arranging more frequent deliveries, this will help to keep stock to minimum and make managing your supplies easier

•Manage supplier relationships more carefully - shop around to make sure you are getting the best deal. Also, negotiate longer credit terms and volume discounts to free up more cash to reinvest in the business

•Don’t bury your head in the sand – remember to communicate with all the key people involved in your business including your bank manager, suppliers, staff and customers. If you have an issue, tackle it early to stop it developing into a greater business problem later

•Keep the cash flowing – review your funding requirements regularly to ensure the needs of your business are being met. It is always worth considering new options and it may be beneficial to take a fresh look at the alternative solutions available. Invoice finance is one such solution that can guarantee your business has an ongoing, flexible supply of working capital

About The Author

If you would like to learn about the benefits of Invoice finance please call Bibby Financial Services on 0800 91 95 92 or visit www.bibbyfinancialservices.com