Essential Cash Flow Management Tips

  • Ensure that you keep accurate and up to date management accounts (past) and cash flow projections (future).
  • Don’t be afraid to update your projections if new information comes to light. Remember, this is not an exact science.
  • Set targets with your cash flow projections. This is a good way to ensure it is given attention it deserves.
  • Agree payment terms from day one. If you don’t know when a payment is overdue, how will you manage cash flow?
  • Improve debtor management and ensure your credit control procedures are working properly.
  • Often, it can be a case of who shouts the loudest gets heard. Make sure that this is you.
  • Issue invoices promptly and follow up immediately, if payment is slow or not forthcoming.
  • Ask customers to make deposits when orders are made.
  • Make sure to perform due diligence on any new credit clients. Make sure that they pay in cash for at least 3 to 6 months first.
  • Get rid of old and obsolete stock for whatever value you can. Don’t tie up cash in high stock levels.
  • Offer discounts to your most loyal customers who always pay on time.
  • Get rid of ‘can’t pay, won’t pay’ customers. You are not running a charity.
  • Carefully manage your ‘payables’. Whenever you see expenses growing faster than sales, take out the magnifying glass to find out why.
  • Take full advantage of creditor payment terms. If a payment is due in 30 days don’t pay in 15 days.
  • Make payments online, on the last available day. That way, you are within your terms and will have the use of these funds as long as possible.
  • Always communicate with your suppliers, especially during tough financial times. If you ever need to delay a payment, they will understand.
  • Don’t be afraid to shop around for lower prices or better credit terms. But don’t always focus on lowest price. I’m a firm believer that you get what you pay for!
  • Make sure to keep your bank on side. You never know when you might need that overdraft facility or short-term loan.
  • Banks are wary of borrowers who have to have money today. If you manage cashflow properly, you will foresee a possible shortfall in future months. It is at this time that you need to contact the bank or lender.
  • Proving accurate cash flows is more important to the bank that providing assets as security for repayments.
  • Make a list of 1. ‘Must pay’, 2. ‘Important to pay’, 3. ‘Flexible opportunities’. Don’t pay everything at once.
  • Do not use money due to Revenue Commissioners (VAT, PAYE & Income Tax) as your working capital.
  • Discipline yourself to pay on time. Set-up a standing order and spread the debts evenly over the year. This will also ensure you avoid any unnecessary interest and penalties.
  • Make sure to focus on cash flow and not profit. This is a common error of many businesses that fail. Remember, a profitable business can close-down if it runs out of cash!
  • Review internal policies such as expenses and travel policy.
  • Reduce employee overtime where necessary.
  • Review and scale back any non-essential activities and costs.