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Avoiding cashflow bumps in your business journey

Written by Carlos Carriedo on Monday, 03 December 2018. Posted in Cash flow, Finance

No business can afford to ignore cashflow. So here are a few tricks to keep a healthy flow of money in your company

Avoiding cashflow bumps in your business journey

Cashflow is the lifeblood of small enterprises. A healthy balance sheet means businesses are in better position to invest in new products and services and bosses are able to negotiate more favourable terms with their suppliers.

But managing cashflow can be a challenge. Research conducted by American Express revealed that almost half of SME leaders worry about cashflow which in turn distracts them from scaling up their business. 

However, it doesn’t have to be like this. Working with business owners everyday in my job as the vice president of global commercial services at American Express, I know firsthand that there are some tips that can be applied to help keep business finances under control. Ultimately entrepreneurs are freer to focus on what matters most – managing and planning business growth.

Thoroughly credit check suppliers

Whilst this may seem more time-consuming in the short-term, it’s definitely worthwhile in the long run. Making sure that both new and existing suppliers are solvent will make you confident they can pay their bills. And this doesn’t just mean smaller suppliers. In fact, big businesses are required to publish their payment data online twice a year in the UK. You can check these figures on gov.uk and be updated on the average time it takes for a larger company to pay their suppliers and the proportion of late payments it has.

Be prompt with invoicing

Delaying or putting off drafting and issuing invoices in the face of more pressing, deadline-driven tasks happens incredibly often. The longer you take to invoice, the longer you’ll have to wait for payments to be processed and arrive in your account. Ensuring invoices are issued as soon as the work is completed – and that your clients expect them to arrive at this point, will prevent unnecessary payment delays. After all, you and your team have done all the hard work so you should make sure you get paid for it in a timely fashion. 

Consider incentives to encourage debtors to pay on time 

Putting in place an agreed, consistent escalation process to chase up any late payments is a sensible precaution. But a more positive way to encourage customers to pay on time is through incentivisation, such as small discounts or more favourable repeat terms. This keeps your relationship with customers on a positive foot and helps reduce debtor days.

Know when your vendors expect payment

In the same way that you would agree your payment terms and communicate timeframes clearly with your customers, make sure you know when your vendors expect payment. This will not just help avoid unexpected strain on cashflow but also help keep cash in your account for as long as possible.

Regularly review recurring costs and cash in on assets

Small businesses change rapidly and can quickly outgrow their current needs and services. Review this on a regular basis, at least annually and have a good spring clean of any subscriptions or services your business no longer has any use for. Hand in hand with this is regularly reviewing suppliers, such as utilities or technology providers, to see if there are more competitive prices available in the market or if existing terms can be renegotiated. Likewise, reviewing your inventories may identify some that are not regularly used or in need of an upgrade that could be sold to free up space and generate a little extra cash.

Have a smooth payment process in place

Using a business card that enables your company to boost its cashflow through deferred payments terms and being able to earn rewards on business spend means you can make your money go further. Making the payment process simpler for your customers makes their lives easier and a good system will also provide transparency that can help you keep track of your payments and ultimately manage your balance sheet. 

About the Author

Carlos Carriedo

Carlos Carriedo

Carlos is senior vice president of global commercial services at American Express. He has worked with American Express in Mexico, Canada and the UK, helping businesses with their financing and payment needs. He has a deep understanding of the challenges faced by businesses today and is passionate about equality in the workplace. He has also represented his home country of Mexico in six World Mountain Bike Championships.

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