Cash Flow Tips

No business can survive in long run without generating positive cash flow.

To have a positive cash flow, the company's long-term cash inflows need to exceed its long-term cash outflows.

Tips to consider regarding Cash Flow:

1. Ordering Process
- make ordering process quick and simple for customers.
- avoid doing significant amounts of speculative pre-sales work.
- avoid doing business with slow-paying or non-paying customers from the start.
- do not hesitate to turn down an order that might put too much pressure on the business's cash flow.
- ensure the specification for every order is clear, to avoid later disputes.
- avoid sloppy transaction processing, as disputes or part deliveries will delay payment.

2. Payment Collection
- ask for deposits for large orders to fund purchase of materials. Seek advance and stage payments.
- payment process does not start until invoice has been issued when goods dispatched or services delivered.
- do not hesitate to invoice for any additional work requested outside of the original order.
- offer customers a small discount for early payment of invoices.
- sales commissions should always be paid on the basis of cash received, not order taken.
- do not afraid that chasing cash will upset customer. Be polite and professional and avoid emotion.
- if told that cheque is in the post, ask for cheque number and date posted.
- maintain an up to date "Stop List" of customers to whom you will not give credit.
- compare your average debtor days with similar companies in your industry. Set targets for reduction.

3. Cost Control
- have a purchase order system which requires staff to seek approval before committing the company. Once the invoice arrives, there is little the business can do other than pay it.
- reduce inventory, which ties up cash and earns no direct revenue. Suppliers can deliver more frequently in smaller quantities. Identify peaks and troughs and plan for them.
- dispose of old and obsolete stock.  Review the product range to see it can be consolidated to reduce finished inventory.
- cut cost by reviewing expenditure for last few months.
- sell assets and equipment that are little used to release cash.
- investigate availability of grants, so as to reduce the capital costs that need to be financed.
- bank interest calculations and transaction charges should be checked, to avoid overcharging.
- do not take on new commitments, such as employees or equipment, unless the cash flow forecast shows that the business can finance it.
- do not become dependent on one or more large clients, as losing them could jeopardise the business.
- transfer any surplus funds to deposit accounts on a temporary basis.

4.  Make use of Technology
- use internet banking to reduces charges and give more control over bank accounts.
- pay bills electronically to reduce charges from the bank.
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