enhancing cash flow

Discussion in 'Cashflow forum' started by Kieran.Hanrahan, Mar 24, 2010.

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  1. Kieran.Hanrahan

    Kieran.Hanrahan UKBF Newcomer Free Member

    1 1
    Cash flow is still about cash in, cash management and cash out.

    You control cash out.
    You control cash in your possession.
    You influence cash in.

    Get advance payments / deposits on all new work.
    Get agreement on phased payments for longer term work
    Get a retainer, paid monthly.
    Get payments automated by direct debit or standing order (and monitor them to make sure they are not cancelled)
    Get post dated cheques (and remind the client each time before you cash them to make sure they are honoured).
    Bank drafts are better!
    Consider escrow or similar arrangements for international trade.

    Invoice the same day the work is completed.
    Don't wait to the end of the week or the month.

    Clearly state the due date, terms and conditions on your invoice.

    Offer a discount for early or advance payment (this can be a credit on their next order/purchase with you so as to encourage more business).

    In some countries there is an automated early payment discount scheme.

    Publicise incentives clearly on each invoice and statement.

    Don't increase credit limits. If people want to do more business with you, retain the credit limit but ask them to clear the balances faster. "John I can't increase the credit limit, but if you pay us every 30 days instead of 60, I can double the amount of stock we can send you at the new price."

    Don't give credit. Use an effective professional credit control process.
    Get a commercial credit report on all new large potential clients.

    If specific customers are notoriously slow to pay, charge them more. If they find out and complain, introduce them to the early payment discount.

    You may need to lose some of the worst customers. Look at contribution, look at the cost of credit afforded to them. Check your creditor v debtor days. Its not your job to fund their business, that would be a bank's job!

    Go back to suppliers and seek reductions in price or extensions in credit.

    Introduce aggressive and effective competitive tendering.

    Locate and invite tenders from new suppliers.

    Hedge on currency movements if you are trading internationally.

    Consider using credit cards - so long as you clear the balance each month and do not incur actual interest charges (often punitive), they are very cost effective - some will pay the government duty for you if you use it often enough. There is a reason why they are called credit cards ;0)

    Use online banking for payments. You retain control of payments, whereas you have to wait for people to present cheques and for them to be processed... it may not save you money but it controls cash flow better.

    Ask for people to pay you using EMTS / online payments.

    If you have it, put excess cash in hand in a deposit account.

    Reduce your overdraft facilities where possible. This may require you to put some additional equity into the business but it will reduce the costs which are a constant drain on your working capital. You can always pull the new equity out of the business at a later stage, as the economy lifts.

    Assess all purchases from the last year and check if some should properly have been purchased with a loan for example for plant and equipment. If you do identify such, talk to the bank manager about rebalancing this - by taking out a loan to cover those costs and keeping the "loan" in the business as additional working capital, to improve your cash position. I have seen lots of clients over the years accidentally starve themselves of cash by purchasing assets and not using debt to part finance the assets. In the current environment, this can be a "big ask" from any bank manager.

    Look at all your debt.
    Are you using the right debt for the right purpose?
    Does the term of the debt match the useful life of the asset?

    Run sensitivity analysis on your main costs. This is easily done with an Excel spreadsheet. Identify the costs you are most susceptible to and either seek to reduce them or seek to hedge against adverse movements.

    Consider changing banks. A painful process even with the new switching code agreed, but many are offer one or two years free banking for new accounts. Why do you think a bank is sponsoring this competition!!!!!

    Re-negotiate all bank charges, everything is negotiable - definitely not winning now!!!

    This is just off the top of my head... hope it helps...
    Posted: Mar 24, 2010 By: Kieran.Hanrahan Member since: Mar 24, 2010
  2. Robtheblob

    Robtheblob UKBF Newcomer Free Member

    23 3
    Wow! That is comprehensive... There is a lot of sound advice in there. Crack open the bubbly I reckon!:D
    Posted: Mar 24, 2010 By: Robtheblob Member since: Feb 12, 2010
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