As a cash flow specialist, Jennifer Lambden (the Guild’s finance and cashflow expert) understands that in business, cash is king. Here she outlines 10 tips to improve your cash flow. Without cash your business won’t be able to grow its sales or budget for its marketing.
Here are her top tips on how to manage cash flow:
Make sure that you do a credit check on a potential customer before offering a credit account. Create a short credit application form that contains the details of the contract and who is responsible for the account. Carry out a credit check to ensure the customer is credit worthy. This can be done yourself via a credit agency or utilise your Guild membership and ask for our support in this area.
Make sure the credit terms you are offering are set out before you make a sale. This won’t put off the customer. Instead it highlights to them that you are serious about your business and are looking to grow the account they have with you.
Don’t get into difficulties because of late payments. Aim to build the cost of credit into the quote you give a customer. But remember, you need to remain competitive whilst also making a profit.
When dealing with a new customer, make sure you have all the details required to invoice. If the customer needs a purchase order number, make sure this is quoted on the invoice at the time the order is placed.
Call your customer two weeks before an invoice is due and check everything is OK with their order. Show them that you value their custom, whilst making sure you have met their criteria in order to receive payment.
If the customer has a dispute with their invoice, the payment won’t be made until this has been resolved. It’s important that you have contacted the customer first to check the invoice is correct. If you don’t, they may not let you know there is a problem, which may cause delays.
This is your money and have sold the goods in the good faith that you will be paid. Ask for your payment if it is overdue and request this as early as you can. If the customer has a rolling credit from you, consider if they will be able pay several invoices next month if they cannot pay one invoice now.
Businesses finances vary from month to month. This means you should aim to carry out credit checks on customers regularly, usually twice a year. This will inform you whether the customer is borrowing within their means and ensure that potential problems are identified early.
Do not extend their credit limit if a customer cannot afford to pay. They may say to you that in order to pay you they need further goods to sell. Ask yourself – what did they do with the money they received from your last goods? Did they pay another supplier? Work with them constructively, but don’t let them use you as free finance.
Outline your expectations at the start of a relationship with a new customer. This helps to build a good, mutually beneficial relationship. If you don’t, it may be open to abuse and ambiguity. A good customer is one who buys from your company AND pays for their purchases.
If you don’t take time to manage cash flow, growth will be restricted. In extreme cases a business can fail. This means cash flow literally is a matter of survival…
Jennifer Lambden FACP, ICP, F.NALP, is a self-employed Paralegal adviser and credit expert at Omega Paralegal Advice Ltd. She has worked as a consultant, coach and mentor with businesses for over 20 years.