Tips to improve cash flow in your business

In accountancy, the adage goes: turnover is vanity, profit is sanity, but cash is king. Cash is the lifeblood of every business, making cash shortages a significant risk. In this insight, Accounts and Advisory Associate Director Martin Kerr offers up tips to improve cash flow and help avoid cash shortages.

Tip 1: Monitor your business cash flow

Having mechanisms in place to improve cash flow can be useful, but the starting point should always be monitoring cash flow. Otherwise, it isn’t easy to forecast lean periods and plan for them accordingly.

If you are using Xero cloud accounting software, functionality exists to view a short-term cash flow projection, or you can easily connect to an add-on, like Syft, that can monitor and predict your cash flow. If you aren’t using accounting software or your software doesn’t connect to monitoring applications, you might need to plan using cumbersome spreadsheets.

Tip 2: Set cash aside for lean periods

With cash flow monitoring in place, your business will be better able to set aside savings when cash flow is strong. Building a reserve can then help deal with anticipated lean periods. Think of it as money for a rainy day!

Tip 3: Define your payment terms

Define customer payment terms at the start of all new customer transactions and clearly state them on your invoice. Options like upfront deposits or staged payments will improve cash flow, but can be tougher to negotiate with new customers.

Tip 4: Make invoicing more efficient

Consider when you raise your sales invoices. Raising the invoice as soon as the work is completed or goods are sold could get your invoice approved sooner and also included in an earlier payment run.

Perform regular administrative checks to ensure that digital invoices are sent to the correct customer email address and that bank details are clearly displayed. Consider including ‘pay now’ links or QR codes to make paying simpler and more convenient.

Tip 5: Improve cash outflows

• Maximise your supplier credit facilities to their limit. Are you using suppliers’ agreed credit facilities? Delaying a payment for a few days might be enough to get over a short-term hurdle
• Work with key suppliers to establish extended credit terms and move away from payment upon delivery
• Consider buying high-volume supplies in bulk if discounts are available
• Review regular outgoings and monthly direct debits – don’t be afraid to shop around for better deals/terms if you aren’t tied into a contract
• Identify payments or subscriptions that are no longer required or in use. You’ll be surprised how many end up forgotten about!

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Consilium Chartered Accountants are trusted by business owners across Scotland to provide accounting support and advice that makes a real difference. Our accounting and advisory services mean you can focus on what you do best: growing your business.

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Martin Kerr has been a qualified Chartered Accountant since 2003 and an Accounts Advisory specialist for over 20 years. As an Associate Director, Martin advises clients on accounting, management accounting, and Cloud Accounting services.