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Cash is King – Cash Flow Management for Businesses

23rd March 2021

Cash flow management - best practice

Cash flow management should always be at the top of the small business to do list, especially in such uncertain times.

It is never too late to revisit best practice, so let’s take a look at some key steps to see how you can sharpen up your cash flow forecasting:

Use a rolling forecast to get the best estimate liquidity over an unpredictable year and beyond. Anticipate crunch points and estimate the likelihood or severity of big gaps and plan for each scenario.

Update your cash flow forecast more often. With the situation changing so fast, look at your forecasts weekly or even daily and make sure you include every penny. If you’re sailing close to the wind, the small costs can tip you over the edge. Iron out seasonal variation and try to diversify into new product lines, new customer segments or channels.

Make payment easy. Add a credit card link to your invoices and look to switch regular customers to direct debits. Make your payment terms unmissable and have consequences for late payment and incentives for early payment. Offer retainers, as just a few regulars can smooth cash flow and avoid an end of month scramble.

Escalate debt and be strict about the timing and stages of your debt collection process. Consider using a collection agency or invoice financing to help. Health check your suppliers, as understanding their cash situation gives you a more realistic view of yours.

Choose your partners wisely. Check credit rating and key financials for critical suppliers and customers. Work with fast payers, they might bring smaller projects or slimmer margins, but profit needs to take a back seat for now. Invoice for deposits if you can and invoice fast.

Get support. Train up someone else in your business to keep an eye on daily credits and debits and make it a team thing by taking your cash flow figures into management meetings and making them a focus for the whole business. Keep your bank in the loop and tell them about any unexpected changes in your cash flow forecast. They’ll be more prepared to offer credit and you’ll be in a better position to make a strong application.

CTA TOP TIPS:

  • Make cash flow management your number one daily priority for you and your team.
  • Work closely with your customers and suppliers to get through these times together.
  • Talk to your bank and keep them informed.

More information surrounding small business survival can also be downloaded in our free guide:

Cash flow management in a crisis

In a crisis the principles and practices of good cash flow management don’t change, but ongoing lockdown brings in a new level of urgency and some additional factors to consider:

You should focus on the next three months. Right now, all your energy should be going into the next 12 weeks. Your priority is to stop the cash bleed, maximise cash in and minimise cash out.

Hibernation is the wrong word. Even if you’re not operating at all, you might be busier than ever, managing cash flow. Keep speaking to suppliers and customers and revisit your spreadsheets every day to see what’s coming in, to see what’s changed. In normal times, cash flow management is a fairly linear process, but now it will be much more fragmented.

With cash flow problems being so widespread we are in new territory with payment terms. Negotiation is the new normal. Call your customers and suppliers and start negotiating. If you can’t pay an invoice, offer to pay part of it or pay it in instalments. You’ll be surprised at how willing people are to be flexible and understanding. It’s not in anyone’s interest for you to go bust so don’t be afraid to ask for goodwill.

Be realistic. even if you have to pay a little bit of interest to defer payments, it might be worth considering. Your main aim is to keep cash in the business for the next few months will prioritise the funds you have so you can afford to pay your employees at the end of the furlough period.

Don’t wait 15 or 30 days until your invoices are due, follow them up with a phone call the day you send them. Check the invoice has been received and that there are no errors in it. You always want to be taking away excuses for late payment and if there’s going to be a COVID-19 related problem you’ll know about it sooner rather than later. This means you can kick off frank conversations and find a way forward that suits you both.

If you’re in a position to accept part payments on your own invoices, do so, especially if you have large invoices out there. If your customers survive, you’ll get the rest of the money eventually and you retain their loyalty. If they end up going under, you’ll have at least received some money from them.

If you can afford to pay only one supplier, have a process for deciding which one gets paid. Prioritise creditors according to their size or their importance to your business. It might even be a situation where you need to prioritise payables for a supplier that is on the brink of failure in order to prevent a critical failure of your own supply chain.

Be SME supportive. If you have small business customers and you’re in a position to offer friendly terms, try to do so. You’re supporting your sector and making a strong comeback more likely for your own business ecosystem.

CTA TOP TIPS:

  • Focus on the here and now and don’t look further ahead than the next 3 months.
  • Negotiate, negotiate, negotiate – with customers and suppliers alike.
  • Do everything you can to keep cash in the business.

More information surrounding small business survival can also be downloaded in our free guide:

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