In everyday business, your cash flow is a measure of what you’ve got coming in and what you’ve got going out. On that basis, it is an ongoing mission to ensure that you account has enough cash to cover the expense of running your business.
However, you also need to consider when each payment will be received or made by customers, particularly if you have long payment agreements. On one hand it’s great that you have billed £20,000 to your customers and only have monthly outgoings of £8,000, but that’s not much consolation if they’re paying late and your suppliers are demanding payment immediately. By the time the payment from customers come in, you may have already spent that money to pay staff and company overheads, or simply not had enough working capital to even get to that point where you can grow.
These kinds of voids are, ironically, particularly dangerous for product-based and labour intensive businesses that are fast-growing and profitable. Every time you earn a new customer, you will need to purchase raw materials to fulfil their orders (not to mention investing in new people and equipment) before you get paid. You would also need to pay your staff on a weekly basis if you are a labour intensive business such as a manufacturing or construction firm.
If those customers turn out to be slow payers, your profitability and growth plans could face cash flow problems and possible liquidation.
So what steps can you take to transform your cash flow?
1. Invoice your customers quickly
Organisation is key! The sooner you invoice, the sooner you get paid. Some businesses regard invoicing as a tiresome chore—something to be done only after revenue-generating activities have been completed.
While it’s crucial to pursue growth and focus on core business activity, growth is irrelevant if your cash flow is negative and you go out of business. Set aside specific time for invoicing and prepare all the information you need in advance.
2. Make it easy for your customers to pay
Try to offer a range of different payment methods, as not all customers will opt for bank transfer. Cash, checks, debit and credit cards, and online and offline money transfer services are all useful options—and could result in getting paid much faster.
3. Use Invoice Finance
Invoice Finance or invoice factoring is a perfect example of how businesses in the UK with slow-paying customers can obtain short-term funding if they have outstanding invoices. Enlisting a factoring company such as Populous World can provide businesses with the working capital they need to bridge the gap between creditors when they stumble upon cash flow shortfalls.
4. Re-Negotiate Long-Term Contracts
If you have long-term contracts with suppliers or service providers, you could re-negotiate terms with those that you have a long-standing relationship with. Suppliers that you have a well-established relationship with may be willing to compromise on a better, more cost-efficient arrangement, especially if it secures you being a loyal customer for the long-term.
5. Create Customer Incentive Programs
If it is a constant battle for you to get customers to pay you on time and you hate having to chase them because you fear to damage a good rapport, why not implement an incentive and penalty program. Applying discounts to any account paid early or on time could be of interest and beneficial to your client, therefore improving your cash flow outlook. You will also be able to save on the time and resource costs of constantly having to confirm that payments have been received.
>> Is your business in need of fast, short-term financing? Do you need to access cash faster than your customers pay you?
Populous World is an Invoice Finance provider that unlocks working capital for UK businesses.
Bridging your business’s cash flow gap is something that Populous World excels in delivering, providing you with the funding tools to grow and sustain your business.