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The importance of cash flow

Many experts in the business world would argue that cash flow Is more important than profit. During the uncertain times surrounding COVID-19 the issue of cash flow has never been more important. Furlough and government grants may be available to help with cash flow in these times. Here are some tips to help you manage your business cash flow.

Know your customer

If you are advancing credit to your customers, remember to carry out the necessary appropriate checks so that you are satisfied they have a means of paying you for the goods, work or services that you are providing.

Use Technology

Use Cloud Accounting software for your accounts and invoicing. This will allow you to invoice on the move and monitor payment. The support with invoicing and credit control is only a small part of what Cloud Accounting can do for you and your business, for more information click here.

Invoice promptly

It’s easy to forget to invoice clients in a timely fashion, but it inevitably will lead to a delay in the ultimate payment date. So be prompt and don’t let things slip. This can be a particular issue if you’re an owner-manager, who gets bogged down in the day-to-day work. Make sure you reference the relevant purchase orders and, if applicable, customer approved documentation, as there’s then much less wriggle room for your customer. And less chance they’ll tell you to go back and resubmit your invoice. You can even attach your paperwork to the invoice in a cloud platform such as QuickBooks Online or Xero and ask your client to approve it.

Introduce a credit control process

If your customers haven’t paid you within the time you stipulated, i.e. in accordance with your terms, which may be 30 days for example, you need to know and have a system to follow up any outstanding amounts promptly and persistently until the debt has been cleared. Businesses which get paid promptly are often those with dedicated staff responsible for chasing debts. As soon as your company reaches a size to justify it, you may well find that the investment in staff makes a real difference.

Prepare a cash flow forecast

Prepare a business plan that includes a forecast of payments showing timing and amounts. This will help instil discipline by getting payment timing right. Paying suppliers late can damage your business relationships and paying too early can impact on your resources available for meeting liabilities or growing the business. Reporting against a forecast will enable you to spot problems early as well as planning ahead.

Spread your payments

Many suppliers offer facilities to enable spreading payments monthly at no additional cost. This may be by standing order, or increasingly by direct debit. These methods help establish a pattern of regular payments and make forecasting easier. They can work well for all businesses including those with seasonal activity.  By having a regular pattern of payments it eases the impact of peaks and troughs and lessens the impact of large payments e.g. the quarterly VAT liability.

During these unusual and challenging times for individuals, businesses and other organisations we are here to help. Please speak to your usual contact at DNG or get in touch by clicking here.

Andrew Clifford



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