Cash is king: Four ways small businesses can improve cashflow during lockdown
There can be little doubt that small businesses have felt the sharp end of the economic downturn caused by coronavirus. Whilst government measures such as the recent bounce-back loan scheme (BBLS) have gone some way to relieve the pressure, without effective cashflow management many firms will struggle to stay afloat as we enter an inevitable downturn.
In times like these, effective cashflow management is essential for the survival of a business. With this in mind, here are five best practice tips that business owners can follow to keep on top of their cashflow.
Know your customers
All business is good business, right? Well, not necessarily. Before agreeing to work for a customer, business owners should first check their reliability to avoid late payments and bad debt later down the line.
For example, if you’re a wine merchant that supplies bulk orders to restaurants, it makes sense to do a background check on a new customer before agreeing to deliver a large order of bottles to their doorstep. By checking their credit score, credit limit and how quickly they usually pay suppliers, you can feel confident you’re making the right decision in working with them.
Unfortunately, in a recession you may find that even loyal customers struggle to keep up with payments. For this reason, it’s a good idea to run up-to-date risk analysis on all existing customers, so you can decide whether to change your credit terms. This way you can agree a payment plan that works for both you and them.
With Satago, you can run real-time risk analysis on all new and existing customers, so you can avoid any nasty surprises. Click here to find out more.
Get paid on time
Easier said than done. But believe it or not there are some simple hacks that can significantly reduce your debtor days.
Format your invoices clearly, make sure you highlight the due date and any late fees that will be incurred if customers fail to pay on time.
Send out invoices immediately after making a sale, your efficiency will encourage your customers to follow suit.
Make it easy for customers to pay you. An individual customer may be happy to use electronic payment methods such as Paypal, whilst larger firms may prefer a more traditional bank transfer. Adjust your payment process to suit your customer.
Send reminder emails before the invoice is due. Make sure these contain all relevant information, including due date, late fees and payment details.
Send monthly statements to your customers so they have an up-to-date record of what they owe.
Send thank you emails to customers after receiving payment. This helps establish a positive relationship and aids timely payment in the future.
The easiest way to keep on top of your unpaid invoices is to automate the process. With Satago, you can set reminder emails, monthly statements and thank you emails for each customer on your books, making debt collection a doddle. Click here to learn more.
Negotiate your overheads
At its simplest, cashflow management is about money in versus money out. If you can reduce your overheads without compromising on the quality of your services, your cashflow will improve.
One way to achieve this is to negotiate. Are you in a position to pay your suppliers early? If so, they may be willing to offer you a discount. Alternatively, if you’re currently experiencing cashflow problems and are struggling to pay the bills, your creditors may be happy to let you defer payment until business improves. You won’t know unless you ask, so make sure you pick up the phone.
Some business owners are reluctant to take on finance. But once you understand the different options available, acquiring finance needn’t be a daunting prospect. Done right, it can ease cashflow worries and facilitate the healthy growth of your business.
There are many different financial products for you to consider. The government-backed BBLS is great for businesses who are looking for a one-off loan to help them through a tight spot. Businesses can borrow anything between £2,000 and £50,000 with no interest for one year. After this period the interest rate on the loan will be 2.5%.
If you’re looking for a more long-term solution to your cashflow concerns, you might want to consider invoice financing. Invoice financing is an ideal solution for businesses who have money tied up in unpaid invoices, but struggle with short-term liquidity.
For example, the owner of a construction company may be owed money from several clients but find it hard to pay staff on time each month due to cashflow problems. Rather than dipping into his overdraft and incurring charges, the business owner can choose to borrow money against his unpaid invoices, ensuring a steady stream of capital and allowing him to stay on top of regular bills.