Cash flow Strategy – Do you have one?

6 Key Elements to factor in

Cash is the most important asset of any business and preservation of cash should be central to any business owners’ strategy.

One of the most common reasons for a business failing is due to lack of cash. Even during the highs of the business cycle things can go wrong if there are no liquid assets available to pay suppliers and staff.

The key elements of managing cash flow are:

• Know your customer – are they worthy of credit or should you request payment upfront? You can run desk top credit checks or enlist our help with this.
• Payment terms – all customers should be given clear terms in writing. Follow up unpaid invoices as soon as these terms are broken.
• Invoicing – ensure that you raise invoices immediately after you have supplied the goods or services.
• Negotiate terms with your suppliers – make sure payments are made within the terms agreed. Paying on time earns your business respect and improves your trading relationships.
• Financing – it may be possible to negotiate a loan or overdraft to help ease the strain of managing a tight cash budget.
• Factoring – an option for a business where the factor agrees to pay the business a percentage (normally around 80%) of the cash due from customers. The factor independently undertakes all credit management and pays the balance, less their charge, once the customer pays. However a word of warning – the factor will normally be able to reclaim its money from you if the customer does not pay. Using skilled legal specialists to review your contracts in this area is always recommended

At Johnston Smillie we understand the difficulties business owners face with managing their cash flow. We can produce cash flow budgets to help identity issues before they arise. If you would like to discuss cash flow planning or any cash flow problems you may be having, please contact Angie Harvey at angie.harvey@jsca.co.uk or call her on 0131 317 7377 and she will ensure you are put through to a relevant member of staff.