Cashflow is important to the success of any business and it is imperative as a business owner that you are reviewing your cashflow position on an ongoing basis. Ensuring that effective processes are in place to help manage cash flow will assist you in making key management decisions about your business.
Debtors
You need to ensure that the administration for the opening of accounts for new customers in your business is being closely supervised, to ensure that you’re not just attracting someone else’s problem customers.
It’s a good idea to establish the credit worthiness of each customer. You can subscribe to services that Dunn & Bradstreet provides, which will assist you with getting credit worthiness information on your potential and new customers. You need to determine the Terms of Trade and make sure these are communicated to your new customer.
Another key aspect of cashflow management is to ensure that the debtors are invoiced promptly and that the invoices are being dispatched to your customers as soon as they’re prepared. It is a good idea to review how easy you’ve made it for your customers to pay you. Can customers pay you by electronic banking or credit card? Are you still relying on cash and cheques? Most businesses have found it’s a good idea to offer a number of payment options to customers, to ensure that you get paid promptly.
With a new customer, it’s always a good idea to consider whether you’re going to ask for an upfront deposit.
Are you receiving details of your debtors’ days outstanding each month? Are you reviewing your debtors’ days analysis and issuing prompt follow- up action against any debtor who’s not paying you in accordance with your Terms of Trade?
Inventory
• How much money do you have tied up in your stock (inventory system)?
• What’s your stock turn rate? Could it be improved?
• How much investment in stock did you budget for?
• What do you need to do to reduce your investment in stock?
• Are you building up old, out of fashion and damaged stock? If so, should you be giving consideration to holding “sales” to liquidate those items in stock as soon as possible so you return cash to your business?Cashflow management is vital for business success. Some of the ways you might be able to improve your cashflow performance is to negotiate longer payment terms with your suppliers.
If you would like some assistance in a review of your cashflow position, please don’t hesitate to contact us.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general
comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our
formal advice be sought before acting in any of these areas. It is issued as a helpful guide to clients and for their private information.
