Cash flow management is an area that almost all small businesses struggle with at least some point in their lifetime, and a challenge which must be conquered to secure long-term success. In fact, 20% of new businesses fail within the first year, in part, due to cash flow difficulties.
A study has shown that 61% of small businesses struggle with cashflow, and a third of those surveyed have difficulty paying loans or vendors.
With limited resources and many moving parts, it is common to slip into cashflow difficulties, but fortunately, there are steps you can take, and strategies you can implement, to try and stay in control.
Where possible, capitalise on financing options such as loans, to help mitigate against the impact of cash flow volatility.
Run regular credit checks on your customers. Circumstances can change quickly, as the last couple of years has highlighted, so ideally this should take place every six months.
Ensure you know the history of your largest customers. For example, if directors have a history of bankruptcy, a degree of caution may be necessary.
If a customer regularly defaults on payment terms, are they worth the resources it takes to service them and chase down payments? Turning away business might seem counter-productive but could positively impact the bottom line.
Research by the Federation for Small Business (FSB) found that small businesses are owed on average £23,000 at any one time, and that it takes an average of 43 days to get paid. Consider your credit terms and look at introducing 14-day payments or small deposits for the largest customers. Look into offering a small discount for early payment.
Invest in a software solution with robust financials, to generate invoices automatically and in a timely manner, provide alerts when payments become overdue, and facilitate immediate action to recover debts.
Ensure you have a clear credit control policy in place and create a series of automated letter and e-mail templates to communicate appropriately with customers and recover late payments.
When chasing payment, always act appropriately. Be firm, polite and diplomatic.
Credit Management applications will help you prepare for things going wrong by giving you a clear real-time picture of your financial status in an easy-to-understand format.
Review cash flow processes and resources on a regular basis and set realistic targets to ensure continued improvement.
Remaining in control of your cashflow is vital to small business success, and whilst it can be easy to slip into problems, there are steps you can take to try and mitigate cashflow difficulties.
Staying on top of customer debt, considering your credit terms and regularly reviewing your business processes, among other important steps are covered in our ten-step plan.
For more information on how Pegasus can help improve your cashflow, please contact us today.
Posted On: November 29, 2023
