Steps to avoid cashflow problems in your business
No matter how effective your negotiations with customers and suppliers, poor business practices can put your cashflow at risk.
However, there are some practices you could introduce into your business to reduce the risk of cashflow problems. For example, you should think about:
- Running credit checks on your customers to ensure they can pay you on time - see ensure customers pay you on time.
- Whether you can fulfil your order - if you don't deliver on time, or to specification, you might not get paid. You should measure your production efficiency and the quantity and quality of the stock you hold and produce to ensure you can meet all your orders.
- How effective your marketing strategy is - especially if your sales are stagnating or falling - see create your marketing strategy and sales channels to reach your customers.
- How easy it is for your customers to do business with you - for example, if you could accept orders over the telephone, email or internet, customers may be able to pay quicker. You should also ensure catalogues and order forms are clear and easy to use to improve the sales and payment processes.
- Keeping up-to-date accounting records - to help warn you of any impending cashflow crises or prevent you from taking orders you can't handle. See identify potential cashflow problems and how to avoid the problems of overtrading.
- How you work with your suppliers - make sure they are not overcharging or taking too long to deliver. See developing supplier relationships.
- Controlling your overheads - you could consider outsourcing non-core activities such as payroll services or review your utilities contracts to see whether it would be cheaper to switch tariff or supplier.
Sometimes after doing all you can, your cashflow forecast may still suggest potential cashflow problems. You should consider using temporary finance facilities such as an overdraft or credit card to see you through. Having a cashflow forecast to demonstrate the shortfall is temporary and will reassure finance providers.
For more information see Invest NI's tutorial on maintaining a positive cashflow - it will outline actions you can take to manage your cash effectively and provide you with key tips to keep your business financially sound.