Improving Cash Flow ...
A Crucial Element of Your Business!
Posted by Maureen Windridge on 09/02/2012
I'm regularly asked by my clients for advice and information about how they can improve their cash flow and of course there are lots of elements to think about in doing so. This is a very important element of your finances and I'm sure you've heard the saying, 'Cash flow is king', or something similar, anyway ...
there are lots of ways to improve your cash flow
What does cash flow mean? Here's the Wiki definition: ''Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.''
So, here are some ideas that should help to improve the flow of cash into your business:
Reduce the number of payment days
The main flow of cash into any business is from sales activity. To keep your cash flow in tip top condition, you should aim to keep the number of days between making a sale and receiving the cash for that sale as few as possible.
Some simple measures that could help reduce the number of payment days:
make sure your terms
and conditions of business are clear and understood before you provide any goods or services
check new customers are credit worthy or insist on payment in
send your invoices out as soon as possible - consider weekly or
even daily invoicing rather than monthly
make sure your invoices are accurate, presentable, easy to read
and have clear instructions on how to pay
make sure your invoices clearly state when payment is due
do not be reluctant to chase late payers - if you have provided
the goods or service to the customer's specification you should expect to
receive payment by the due date
Other ways to help get your business invoices paid quickly include:
introduce penalties for late payment, or discounts for early
consider if you need to offer credit at all - can you be paid in
advance, or at least at the time that the goods or services are provided?
setting up direct debits if your customers are making regular
payments to you, even if it's only once a year
Information on your business invoice
Let's take a look at the most crucial pieces of information your invoices must have, which are:
it must state the word 'invoice'
a unique number for identification
your company name, address and contact information
if you're a limited company you must also include your company
if you're a sole trader you must also include your own name if
it's not included in the company name
the company name and address of the company you're invoicing
a clear description of what is being charged for
an invoice date (the date you create or send the invoice)
the supply date (the date the goods or service were provided)
the amount(s) being charged
if you're registered for VAT you must show your VAT registration
number, the amount of VAT being charged, and the VAT rate that has been
the total amount owed
Remember - if you give reason for your customers to query the invoices, you give them reason to delay payment!! Ensure that you get your invoicing right first time - every time!
Watch your credit terms
To keep your cash flow positive you also need to pay attention to the time difference between when your customers pay you, and when you need to pay your suppliers. If you buy goods or raw materials on credit make sure the credit terms you give to your customers is shorter that the credit terms your suppliers give to you.
So there we have it; a few really important things for you to start thinking about to improve your cash flow. If you feel that you'd like more information on this or any area of your Bookkeeping and Accounts systems, then you are most welcome to call me on +44 (0) 1908 692378 to discuss any aspect!
Until next time ...
I consider myself to be incredibly lucky because I am a bookkeeper. At the age of thirteen I did a three year course in three months and passed with distinction. Many years have gone by since then and I am still fascinated by the process of double entry bookkeeping. A process developed over 500 years ago by a venetian monk called Luca Pacioli.
Many people would like a machine that they could put all their paper work into at one end and it would come out the other end all sorted totalled and balanced. I'm glad it hasn't been invented because it would take all the fun out of my work!