As businesses battle today’s unprecedented challenges, it is important to keep your cash flow in focus. Cash shortages can prevent you from meeting your financial obligations and make it difficult for you to plan for the future and expand your business.
Here are some simple things you can do to improve your cash flow and how your accounting software can help…
It is very easy to get caught up in the running of your business that you can neglect the cash flowing into your business. If you don’t already have the right procedures in place, start billing your customers on a regular basis. It is good practice to bill your customers promptly. The sooner you send out invoices, the sooner you are likely to get paid. Automatic emailing of invoices and statements is a must. There is no excuse now not to send out your invoices immediately goods are dispatched and this can be done automatically in most modern business management systems. This will also save you money on postage stamps.
Enforce Payment Discipline
In order to improve the cash flowing into your business, you need to have a good collection system in place. Questions you should ask yourself…
- What credit terms are applicable per customer and how long is it going to take to get paid?
- What is your debt collection strategy?
- Have you got the right contact details for your customers?
- Do you make the right number of contacts with your customers?
- Are you identifying invoice queries and disputes quick enough?
- What is your policy for resolving any queries and disputes?
The above will not only have an impact on how quickly you get paid but also improve the level of customer service you are giving to your customers; which in turn can encourage them to pay on time.
A credit control module in your business software will assist you with debt collection activities. Some packages also included features such as automated Debt Chasing Letters, an option to charge interest on overdue accounts and reports such as Average Debtor Days per customer.
If you have invested time and money into selecting your accounts/business software package, find out what features are available to assist you in improving your cash flow.
Evaluate Your Terms
If you are having problems with cash flow, check how your customer terms balance against your supplier terms. If your average debtor day is 45 days and your average payable day is 28 days, there are 17 days that you have to float. This could mean you have to avail of additional working capital to get over the shortfall. Time should be spent evaluating customer and supplier terms and make any necessary changes. Customers who used to be good payers and received favourable payments terms in the past might not be in the same position this year.
Remember also to clearly display your terms and conditions on each invoice to avoid any confusion down the line.
If improving your cash flow is your priority, it should also be the priority of all staff members. Your staff are in contact with your customers on a regular basis so why not put staff targets in place to motivate them to chase outstanding debts? It’s vital your the systems adequately manage your customer records, including the recording of all letters, face-to-face or telephone conversations.
Your business software should also enable you to highlight, alert, warn of customers reaching their credit limit or who are on credit stop.
Make Payment Simple
Ensure that your payment methods are simple and clear to encourage prompt payment. Can your business software process direct debits? If so, do your customers know? If customers are paying by cheque, is it clear who to make the cheque payable to and where to send the cheque? Simple things like this can make the difference.
A healthy cash flow is vital for your business’s survival so the key to collecting any debt is to act quickly. Don’t allow too much time to pass without notifying your customers that credit terms have been broken. Remember that you want to retain these individuals as customers, so treat them with respect.