Cashflow is the lifeblood of any business.
The simple fact is that if you run out of cash, your business will fail, so consider these tips to help make your cash work for you.
If you are dealing with a large contract, try asking if you can receive the money upfront – it doesn't hurt to ask. Or see if you can obtain a deposit, which could help you cover some of your initial expenses.
If you can, negotiate staged payments to help you get the money in, but ensure you make it clear to the customer what payment is due when.
You can help to speed up the payment process by offering discounts to those customers who settle promptly.
Alternatively, consider charging interest to those who are delaying their payments. Consider offering incentives (such as discounted rates) to customers if they purchase and pay for your products within a specified time frame.
Plan and prepare forecasts
Do forecasts on a weekly or monthly basis to help you understand how your cashflow works. Your forecasts should reflect what money you expect to get in, what your outgoings are on a daily basis, and where there may be problem's it's important to know where you are so you can take appropriate measures.
Make invoices your priority
Remember a sale is not a sale until it has been paid for, so you need to be very prompt about sending invoices.
If you don't, you risk looking unprofessional, or giving debtors the impression that you don't mind when you get paid.
No matter how busy you are, always make room for invoicing. It's a good idea to place a follow-up call after you have sent an invoice to check that it has arrived and is being dealt with, especially if you are dealing with a new customer.
Weigh up the costs of contracts
Many companies fail through overtrading – when they have to bear the costs of fulfilling orders before they have received payments from the customers.
Before taking on contracts that will involve a big financial commitment, check that you have enough cashflow to cover the costs.
Build good relationships with your suppliers
Capitalise on good relationships that you hold with key suppliers – this could come in handy if you need to ask them to extend credit.
But be aware that this could backfire if they start chasing payments from you, so instead try and negotiate different terms of credit.
Be clear about payment terms and conditions
Stick to these before you undertake work – it can be all too easy to offer 'different' terms if it attracts new business. You should also set a good example yourself and stick to agreed payment dates with your suppliers.
Cut costs where you can
Shop around to see if you can cut costs when it comes to suppliers or equipment – getting other quotes can help you renegotiate terms with your current supplier.
In the same way as you send out invoices, you should religiously check those sent to you, in case you are being overcharged.
Consider alternative forms of financing
Instead of exhausting your working capital, try and look at other ways of funding your business. There is a range of options available, such as overdrafts, loans, factoring and invoice discounting.
Keep your bank in the know
Banks don't like surprises, and will be more sympathetic if they get bad news from you sooner rather than later. Keep your bank informed about areas such as your existing budgets and forecasts well in advance of when you may need extra finance, as they will be more prepared to help.