Understanding and managing cash flow is critical for any business, especially during times of economic difficulty. Staying in control of the company’s cash flow will help avoid financial crisis and maximise growth potential. As cash flow management is time consuming, a number of businesses utilise management outsourcing to ensure the company remains solvent.
Reducing expenditure
To increase cash flow, it will be necessary to reduce expenditure where possible. Before making decisions to use cheaper materials or use a lower cost supplier, make sure that the quality of the product won’t be compromised. Know where the company’s money is being spent so that wastage is reduced, and don’t waste money on unnecessary items, especially when cheaper alternatives are available. Setting a budget for each department and maintaining control over expenditure may help to reduce unneeded spending.
Set up a credit control team
Create a team to deal with credit control. The company needs to be paid by customers as soon as possible, as late payment of invoices can be costly and risky for a business. Conduct a credit check on all new clients and restrict their credit limit until they have a proven track record. If someone defaults on payment a number of times, refuse further credit. Make it clear to all customers that interest will be charged on all late payments, using the statutory rate. Set out clear payment terms for all customers, clarifying when payment is due and providing various payment methods to make it easier to pay. Incentives for prompt or early settlement of an invoice can also encourage early payment.
Management of stock
A stock inventory is crucial so that you don’t carry excess items. Careful monitoring reduces slow-moving stock, tying up the company’s cash. If products are not selling, reduce the price to increase their chances, and consider dropping slow movers from your next order. Be aware of any seasonal demands that may affect the amount of stock on hand, and remember that money is tied up for long periods in stock which isn’t being sold immediately.
Warning signals
Use reports, financial statements and forecasts to spot any potential risks. If you believe cash flow may be at risk, take action early to deal with problems rather than waiting until the trouble occurs.
Staying in control of cash flow can be complex, which is why we are happy to hold an informal discussion with you. Why not call us for your informal chat?