Matt White of Calverton Factors gives the following great advice on cash flow to business owners:
Was the dip in GDP growth in the last quarter of 2010 just a consequence of the coldest December in 100 years or does it signal something more serious? Whatever the overlying figures, the real issue for small businesses are sales (or lack of them) and cashflow. Lack of sales may be a temporary blip but the impact on the business can be ruinous as it is often not so easy to cut costs to the same degree. Many businesses have not been able to build up sufficient reserves to overcome short term problems and if this is the case then cashflow management becomes even more important. However there are a number of steps that can be taken in order to improve cashflow and to assist businesses through these difficult times:
1. Financial Information: The benefits of timely and accurate management accounts are more prevalent than ever. A cashflow forecast is essential and this should be your starting point for negotiations with your bank.
2. Your Bank: Visit you bank manager now. You should take with you up to date accounts, forecasts (particularly a cashflow forecast) and aged debtor and creditor lists. Your aim should be to confirm your facilities for the next 12 months.
3. Credit: Begin to think of your cashflow as the most valuable part of your business. Every time you grant credit terms to your customers it is costing you cashflow (as well as real money). Every time you negotiate extended credit terms with your suppliers it improves your cashflow (and saves you money).
For new customers ask them to pay on invoice, or in 14 days, before you go to 30 days – that’s from invoice date NOT end of month following. To help customers pay quickly offer them discounts for early settlement and consider penalties for late payment.
4. Credit Control: A good credit controller is worth their weight in gold and, more than anything else, good credit control is about consistency. Credit control should work to a system of statements, letters, telephone calls and, only if very necessary, legal action. Implement a system of consistent and regular contact with your customer – remember most people are happy to pay; you just need to make sure you are first on the list.
5. Invoice Factoring: Invoice Factoring provides early payment against the value of a business’s invoices. It also provides immediate access to a highly experienced and capable credit control team. As well as providing upfront cash against your invoices, the Factoring Company will credit check customers, chase for payment and if required insure the customers against non-payment.
In the current economic environment the sources of funding for working capital have shrunk. The high street banks are being more stringent on their overdraft lending and with property prices declining it is getting harder to remortgage to raise capital. The one valuable asset that remains on a company’s balance sheet is the sales ledger and this makes Invoice Finance a highly attractive means of maintaining cashflow and protecting the business from the ravages of the recession.
Calverton Factors is an established and independent invoice finance company based in Milton Keynes. If you are looking for finance facilities from £25,000 to £500,000 then please feel free to contact Mathew White on 07748 631630 or at email@example.com.
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