5 ways to safeguard your business cash flow
The survival of many small businesses depends largely on the ability to manage cash.
Retailers may need to pay in advance for bulk purchases ahead of the holidays. Hospitality businesses need to make signage and equipment prominent to acquire new customers, and businesses across every industry meet challenges when customers delay payment.
With business owners almost always dipping into their own reserves to fund new investments, relook at these ways to better manage your cash flow.
1. Set clear payment terms
If you don’t know when something is overdue, how can you manage cash flow?
Be clear with your payment terms and invoice in advance or as work is completed. Small businesses should aim to get paid within 30 days of invoicing but negotiate the longest possible terms for accounts payable. There are even new solutions that will automatically ‘chase’ late invoices for you. If possible, also consider direct debit payments for your customers to minimise the gap between invoicing and payment.
Much of this process is now automated within online accounting systems. Ask us which one might suit you and your business.
2. Cash flow forecasting
As a business owner, do you understand how much cash your business needs to run each day?
Outgoings such as rent, bills and wages need to be compared to the revenue your business is generating. Once you know your budget, you can measure results and forecast what you need to stay afloat. Begin by setting cash flow targets and update regularly to gain a more accurate outlook for the next six to 12 months.
3. Offering retainer packages
Offering selected customers an up-front paid retainer each month may be beneficial for your cash flow. Retainers offer each customer a slightly discounted rate, but getting paid up front rather than in arrears allows you to better forecast your cash flow.
4. Using alternative finance
More and more business owners are funding their businesses with a non-bank lender.
Alternative lenders are different from so-called ‘payday lenders’. Loan amounts can range depending on your business, revenue and how long you’ve been in business. They are often repaid over 3-12 months but offer faster turnaround, online access to apply and quicker access to capital. Your business may be eligible for an unsecured business loan, a line of credit or invoice finance so check with OBT first.
5. Generating new business opportunities
Every business must continually create a pipeline of new business and customers for the future. If you rest on your laurels of attaining new customers, you might hit a trough when one of your biggest accounts goes elsewhere.