Rising costs are a real concern for small businesses at the moment, and many business owners are looking at ways to better manage cash flow in the short term.
Every business experiences financial highs and lows, but with the right foresight and planning, these shouldn’t catch you off guard.
By creating short-term forecasts, getting customers to pay on time and using technology to get clear insights on your business, it’s much easier to keep a tight grip on cash flow. Here are six ways to improve your cash flow management.
UKBF partner Tide, which offers an award-winning small business account, sponsored this article.
A cashflow forecast enables you to see exactly what’s coming in and out over a given period of time – usually 12 months. However, it’s useful to create shorter term forecasts when prices are fluctuating and it’s hard to plan ahead.
A 90-day forecast will give you a more realistic, up-to-date insight into your business finances. The trick is to keep it simple – be prepared to compromise on detail so you can update it easily if things change.
A quicker option is to use an automated forecasting tool. You’ll save time on manually uploading data, and get real-time forecasts and suggestions to manage your finances.
Automated tools can also help to predict your balance by generating simple graphs of the weeks ahead. This is a quick way to stay in tune with your cash flow and spot potential red flags in advance.
There are several ways you can do this, but they all work on the premise that you’re delaying your payment to a later date.
For example, you might have a large annual insurance payment scheduled to be paid every January. However, your business has stronger seasonal trading in summer.
Your forecasting tool should help you spot that income is much lower in winter, so talk to your insurance provider about changing the payment to a month where income is higher.
Start by setting your own terms clearly in your quotes and invoices. State how many days customers have to pay and what will happen if invoices aren’t settled on time.
This is a popular topic on UKBF; users recently debated axing 30-day payment terms in this thread.
One user, ecommerce84, generally offers 14 days to bring up any problems quicker, but posted that they have started to take a case-by-case approach with customers.
“We’ve moved two on to payment when ordering as they were repeatedly late with payments. I was nervous they’d jump ship, but one of them is actually now our biggest trade customer so it hasn’t pushed them away. It’s also made a huge difference to our cash flow,” they said.
Once you’ve addressed your own payment terms, take a closer look at your suppliers’ terms. If you’re automatically paying invoices that could wait longer, it might help to delay payments for longer to balance your books.
Regular suppliers may be open to discussing longer payment terms, or you could try shopping around for suppliers with fairer terms.
Here are three steps that can help:
“We communicated that we would start to charge for overdue invoices 18 months ago. It's had a massive impact – not only in getting the money in, but a big reduction in time spent chasing the debts,” he said.
“We wrote to all our customers, updated our T&Cs and offered the 'carrot' of 2.5% early settlement discount, as well as the 'stick' of interest and costs if [payment is received] over 30 days.”
Make sure you’ve thought about:
Tide runs pre-eligibility checks, meaning you can compare business loans to view funding options for which you potentially qualify.
When you’re busy running a business, it’s not always easy to invest this level of attention, and manually updating spreadsheets is a task that’s often put off.
Automating your accounts is the best way to keep control of your cash flow. Access Tide’s Cashflow Insights tool and connect your business account in minutes. You’ll get:
Every business experiences financial highs and lows, but with the right foresight and planning, these shouldn’t catch you off guard.
By creating short-term forecasts, getting customers to pay on time and using technology to get clear insights on your business, it’s much easier to keep a tight grip on cash flow. Here are six ways to improve your cash flow management.
UKBF partner Tide, which offers an award-winning small business account, sponsored this article.
1. Assess your cash flow cycle
This might sound obvious, but it’s important to go back to basics and understand exactly what money is coming in and going out of your business.A cashflow forecast enables you to see exactly what’s coming in and out over a given period of time – usually 12 months. However, it’s useful to create shorter term forecasts when prices are fluctuating and it’s hard to plan ahead.
A 90-day forecast will give you a more realistic, up-to-date insight into your business finances. The trick is to keep it simple – be prepared to compromise on detail so you can update it easily if things change.
2. Look for cash flow insights and trends
It’s possible to keep your cash flow forecast in a spreadsheet. However, as your business grows, this can be a time-consuming job. You’ll also need to manually analyse the figures to get any deeper insights.A quicker option is to use an automated forecasting tool. You’ll save time on manually uploading data, and get real-time forecasts and suggestions to manage your finances.
Automated tools can also help to predict your balance by generating simple graphs of the weeks ahead. This is a quick way to stay in tune with your cash flow and spot potential red flags in advance.
3. Defer payments
If you do spot an upcoming cashflow issue, delve a bit deeper into the numbers to see if it can be avoided. One way to manage it may be to make some deferred payments.There are several ways you can do this, but they all work on the premise that you’re delaying your payment to a later date.
For example, you might have a large annual insurance payment scheduled to be paid every January. However, your business has stronger seasonal trading in summer.
Your forecasting tool should help you spot that income is much lower in winter, so talk to your insurance provider about changing the payment to a month where income is higher.
4. Keep on top of your payment terms
Payment terms are easy to overlook, but if you don’t pay close attention to the terms you’re setting and those you're agreeing to, it could cost you in the long run.Start by setting your own terms clearly in your quotes and invoices. State how many days customers have to pay and what will happen if invoices aren’t settled on time.
This is a popular topic on UKBF; users recently debated axing 30-day payment terms in this thread.
One user, ecommerce84, generally offers 14 days to bring up any problems quicker, but posted that they have started to take a case-by-case approach with customers.
“We’ve moved two on to payment when ordering as they were repeatedly late with payments. I was nervous they’d jump ship, but one of them is actually now our biggest trade customer so it hasn’t pushed them away. It’s also made a huge difference to our cash flow,” they said.
Once you’ve addressed your own payment terms, take a closer look at your suppliers’ terms. If you’re automatically paying invoices that could wait longer, it might help to delay payments for longer to balance your books.
Regular suppliers may be open to discussing longer payment terms, or you could try shopping around for suppliers with fairer terms.
5. Make sure invoices are paid on time
Being paid on time can have a huge impact on the financial health of your business. For many small businesses, delayed payments can even be the deciding factor on whether they can operate effectively or not.Here are three steps that can help:
- Set and communicate clear payment terms – see the previous point for more advice.
- Check payment probability – look at the payment history of your repeat clients to identify any customers who regularly pay late. Use Tide’s Invoice Payment Probability tool to see at a glance if invoices are likely to be paid on time.
- Develop good customer relationships – automated systems are great for sending out invoices and reminders, but back this up with a personal touch. If customers are regularly paying late, pick up the phone and have an open conversation to see what you can do to help them pay on time.
“We communicated that we would start to charge for overdue invoices 18 months ago. It's had a massive impact – not only in getting the money in, but a big reduction in time spent chasing the debts,” he said.
“We wrote to all our customers, updated our T&Cs and offered the 'carrot' of 2.5% early settlement discount, as well as the 'stick' of interest and costs if [payment is received] over 30 days.”
6. Find funding that suits you
If you’re really worried about your cash flow problems, you may want to look at funding options. There are lots of avenues you can take with funding, so spend time researching what’s right for you.Make sure you’ve thought about:
- How much you need to borrow
- How long you need the money for and when you can pay it back
- What you need the money for
Tide runs pre-eligibility checks, meaning you can compare business loans to view funding options for which you potentially qualify.
Why it pays to automate your accounts
Maintaining a positive cash flow is all about understanding what’s coming in and out of your business. That way, you can predict any problems – and crucially, address them – ahead of time.When you’re busy running a business, it’s not always easy to invest this level of attention, and manually updating spreadsheets is a task that’s often put off.
Automating your accounts is the best way to keep control of your cash flow. Access Tide’s Cashflow Insights tool and connect your business account in minutes. You’ll get:
- A real-time overview of your company’s financial health
- Real-time forecasts and suggestions to manage your finances
- Flexible business loans
- Monitoring on your Expedian credit score
