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Conquering your cashflow

Mastering cashflow management can help boost your business and give you peace of mind in this difficult time. Here are my top tips:

Ask for advice and act early

Get in touch with your bank and accountant for support as soon as possible if you have any cashflow concerns. They can help you consider options appropriate to your circumstances. “Early communication is key,” says the Federation of Small Business. Don’t let things drift, as your business credit rating may be impacted and the number of options typically decreases as a business becomes more cash constrained.

Monitor cashflow carefully

Compare your forecasts against actual performance over time. If your projections weren’t realistic, think about how you can improve next time based on what you’ve learned during the process. Regularly review expenses to ensure they are all needed and are remaining good value for money.

Anticipate the unexpected

Consider a range of possible scenarios including what impact it would have if sales exceed or fall short of forecast expectations. This could be due to a change in demand or issues affecting your supply chain. “Small businesses should check regularly that their most important customers are not at risk of failure,” says the Federation of Small Businesses (FSB).

Create a forecast

While no-one really knows what the future holds, it's better to plan based on your best estimate than to not plan at all. Taking time to forecast, considering factors that may influence sales over time, could enhance credibility with your bank or investors if you seek external financing. When forecasting cashflow, pay attention to when costs fall to help with managing intra-month fluctuations.

Invoice quickly

Get your invoices issued as soon as possible in your customers' required format, to give your business the best chance of getting paid on time.

Manage late payments

Be disciplined: Have processes in place for tracking invoices and chasing late payments. Your firm may be big enough to employ specialist finance staff with credit control skills or you may be able to employ a bookkeeper to help. If you’re handling this task yourself, understand that different strategies may be more effective with different customers – some may respond to a friendly approach, while others will need a tougher line. If your terms say ‘interest will be charged’, follow up on it. This could help to trigger payment.

Understand your customers: The point at which your customers settle their bills makes a huge difference to your cashflow, so drill down into the payment cycles and processes of your customers. Build your cashflow forecasts on the basis of your customers’ payment terms and track record. Look for payment options which help make it easy for your customers to pay you quickly, such as online or contactless payments. You can find out more about payment options here.

Get support: There is help available to businesses struggling with late payments. The Small Business Commissioner publishes lots of useful tips and advice on how to get bills paid on time, as well as how to chase down late and unpaid invoices.

Secure funding ahead of time

An arranged overdraft can provide valuable headroom to utilise as and when you need it, as well as peace of mind in case customers are late paying, but bear in mind that you may be charged interest on your borrowing.

Paying your bills on time helps to maintain a positive business credit rating. However, if you regularly go overdrawn without an arranged limit it can adversely affect your credit score. Always try and plan ahead and talk to your bank about the options in plenty of time so it doesn’t affect your business


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