7 steps to better cash flow management

14/05/2019

Has improving cash flow management been sat on your to do list, something you know is important but hasn’t become a big enough problem to reach the top of the list? Our handy 7 step guide can act as a ready-to-go plan to tackle it before it becomes a real problem.

There are a lot of factors that will affect your cash flow that may seem as though they are out of your control. However, good management means that if any of these factors do have a negative impact that threatens your business, you’re prepared and equipped to handle it.

While it may not seem like the most important area to tackle when it’s not posing a problem, it doesn’t take long for a small downturn in your cash flow to become an issue that could threaten the entire existence of your business.

That’s why we’ve created this 7 step guide. If you know your cash flow management needs a complete overhaul, you can work through the steps in order. If you’re just looking to make a few improvements, try and identify your weakest areas and go from there.

Forecasting

Having a plan for the future, even when it’s based on guesswork, can help you prepare for fluctuations or potential issues.

Do some research into factors that may affect your business over the next year. A PESTLE analysis (considering political, economic, social, technological, legal and environmental factors) may highlight any issues to come. If possible, it’s also a good idea to look at the forecasts and plans of any companies that could directly affect your cash flow, whether its clients, suppliers or partners. 

If you’re a company that has been operating for some time, you should also use any past data you’ve got to shape your forecast. Identify low and high periods and try to find some correlation or reasoning for them. If you’re relatively new, try and use data from within your industry to do the same thing.

Plan for the unexpected

While a forecast is a plan for things you think are likely to happen, it’s also important to have a plan of action for those things that are unlikely but could be devastating to your business if they do happen.

This article about developing a strong resilience plan can help you to identify these risks to your cash flow and how to prepare for them.

Monitor and review

As with any aspect of your business, implementing a plan or a change is just the beginning. Closely monitoring cash flow at all times means you’ll be alerted early if there’s a problem and will have more chance of fixing it. 

It’s also important to review the accuracy of your forecast, so that you can improve next time.

Invoice on time

The faster you get your invoice to your clients, the more likely you are to get paid on time.

While there are many things that may cause a client to miss the payment deadline, receiving the invoice earlier should give them more time to iron out any disputes or just get it though their accounts team to be paid on time.

Tackle late payments

Despite sending everything off promptly, you may find that clients are still slow to get their invoices paid. It’s best to deal with late payments as early as possible, so make sure you always know what payments you have due and which are overdue.

Sending clients reminders, speaking to them on the phone and setting out clear expectations can help you get that payment through. If you’re struggling with a situation where you really can’t get a customer to pay, seek professional advice or help from a debt collection agency before it’s too late. The success rate for recovering the full invoice value is much higher when less time has passed.

Similarly, there are funding solutions that specifically help businesses get around the delay in waiting for payment when trading on credit terms. By releasing up to 90% of an invoice’s value within 24 hours of its issue, it overcomes the cash flow gap between providing a service and getting paid and can additionally incorporate a sales ledger management service.

Use our tool to find out how much you could release with invoice finance

Secure the funding you need

Building on the last point, it’s important to consider how much value external funding can add to your business. With so much choice available to businesses nowadays there are plenty of solutions that can add real value to a business, providing the cash to reinvest into growth or simply to better manage day-to-day commitments.

If you’re not sure what sort of funding is best for you, you can take a look at ‘The resources you need to find the right funding for your business’, or reach out to one of the Funding Consultants at Hilton-Baird Financial Solutions by calling 0800 9774833.

Seek advice

Knowing where to go to seek advice around your cash flow means that if anything ever does happen you can approach it head on. Similarly, if you’re stuck in a rut with your cash flow an expert opinion can help to focus your time and efforts on changes that will have the most impact.

Get in touch with Hilton-Baird Financial Solutions for any queries or concerns you have about your cash flow or funding options.