There are so many businesses that have struggled through periods of poor cash flow. More often than not, issues with cash flow aren’t something to worry about too much as they often sort themselves out naturally over time. However, if your cash-flow problems persist for more than a few months, you might have to start to be a bit more proactive in fixing your finances, as it could start to have a negative effect on the overall business.
If you think that it’s high time that you ended your cash-flow worries so that your company’s finances start to flourish, then read on to find out more. Here are some of our top tips that can help you say goodbye to cash-flow confusion for good.
Save An Emergency Fund
If you don’t already have a pot of cash put away to one side for any business emergencies, then it is necessary that you start saving for this right away. This is so that you have a financial safety net that you can rely on if you do need to spend a large sum of money to cover an unexpected bill or if there is an emergency within the business that needs to be sorted. Not having this fund means that your finances could be wiped out in the event of an emergency, and that could ruin your cash flow for quite some time.
Hire An Accountant
Sometimes issues arise with a company’s cash flow if they haven’t been keeping their books up to date. Disorganized books mean that there is no one managing and keeping an eye on the business’s finances and any money in the bank. You could end up overspending without even realizing it. The solution to this is to hire an accountant. The accountant will be able to take over your bookkeeping completely and ensure that all of your business finances are managed on a daily basis. Not only that, though, but they will also be able to sort out your taxes for you and make sure that your annual tax return is filed on time each year.
Reduce Invoice Payment Terms
One other really handy tip that many businesses find can really help them sort out their cash flow is to reduce the payment terms on all invoices. Normally, a company will set its payment terms to around thirty days. However, that means that there’s a good chance your invoice will go unpaid for the full thirty days. That’s a lot of time to not have the money that you are owed! If you reduce your payment terms by half, then you will be paid a lot quicker. It could even be worth reducing them to as little as seven days.
Don’t Neglect Unpaid Invoices
You will also need to figure out a process for any invoices that end up overdue. You shouldn’t simply leave it for the client to pay whenever they want, as they might just pretend to forget about it and not pay. That will leave you out of pocket and anyway, it’s money that you deserve for carrying out the work! So, you need a process to work through to ensure that all of these late invoices are paid. To start with, you should email out a friendly reminder when the due date is fast approaching. You can then send them another reminder as soon as the invoice becomes overdue. If that doesn’t work, then you can start to add late-payment interest to the final invoice amount. If your invoice is still unpaid after a month or so, you might want to take it to a small-claims court to ensure you get paid for the work you carried out.
Consider Invoice Factoring
If your efforts to get late invoices paid don’t seem to work, there is one further option you have before things escalate to a small-claims court. You can always try invoice factoring. In order to do this, you will need to go through an external firm that specializes in factoring. You pass on the invoices to them, and they will pay you around 80-90% of the final amount. The amount that is deducted is the fee paid to the factoring firm. It’s then up to that firm to get the full amount from your client.
Wait To Pay Your Own Payables
Let’s not forget about all of the invoices that you need to pay your own suppliers as well. Generally speaking, it’s not a good idea to pay them as soon as they are sent out to you. It’s best to keep that money in your account for a little while longer and wait until just before the due date to pay them. This will even provide you with more time to save up if you don’t have quite enough cash in the bank at the minute to pay them straight away.
Be Smart With Purchases
There are some cases in which a business gets itself into a sticky cash-flow situation because of its irresponsible spending habits. If that sounds like you and your company, it could really be worth reviewing where exactly you are spending your business’s money. It could be best to refrain from buying anything until you have sorted out your cash-flow issues. Of course, you will be able to buy essentials – but make sure that they are absolutely necessary!
Only Hire If You Know You Can Afford To
Planning on recruiting new staff soon? If you have cash-flow issues then it might be best to wait until that has all been sorted out before you do bring in any new employees. Recruiting and new hires will be extremely expensive, and it’s something that you should only do if you are 100% sure that your company’s finances are in a good position and that you will definitely be able to afford it.
These are just a few tips that should help you sort out your cash flow in no time at all. Once you do, your company will be a lot more financially stable!