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Take The Stress Out of Your Cash Flow

Stress is most commonly a reaction to mental or emotional pressure. It’s often related to feeling like you’re losing control over something. I guess most of us are feeling stress on some level right now.

According to research by Pay UK, 26% of small business owners stress about late payment, this goes up to 88% for businesses with fewer than 10 employees.

Late payment is usually the biggest factor in cash flow problems, so what can you do to reduce your cash flow stress?

Talk to your customers who owe you money

And by that, I mean actually talk to them. Don’t hide behind email.

At this time, more than ever it’s important to build those relationships. Ask them how they’re doing, both in business and personally.

Don’t be afraid to ask for payment of your invoice. If they’re struggling to pay offer a payment plan. Little and often is better for both of you. By paying you little and often they are reducing their debt instead of letting it build up.

You need to know what money you can expect coming into your bank account and when.

Which leads on to…

Talk to the Suppliers you Owe Money to

Again, pick up the phone.

It’s easy to bury your head in the sand in the hope that they won’t come asking for their money. You don’t want to be treated like that so don’t do it to your suppliers.

Be honest with them, can you afford to pay that invoice when it falls due, or do you need a little more time? Would a payment plan be better?

Just like you, they need to know when they are going to get paid so they can plan their spending.

Create or Update Your Cash Flow Forecast

With all the information you now have about when money should be coming in and going out of your bank account you can update your cash flow forecast. Or create one if you’ve not got one.

A simple spreadsheet is good enough.

List all your expected payments and receipts and their dates, for at least the next 3 months. Add a running total column and sort by date. If at any point the running total column shows a negative number, you have a cash flow gap. 

Manage the Cash Flow Gap

If you have a gap you need to look at the following:

  • Potential sales – how likely are the to convert?
  • Expenses – are you able to pause or cancel any contracts you are currently committed to? Don’t act in haste, carefully consider the pros and cons before walking away from any supplier. Will you need them again when the crisis is over? Do you need them now to help promote your business and generate new sales? Are they fundamental to the safe and effective running of your business?
  • Finance – is there any financial support you could get, such as HMRC’s time to pay scheme, or any grants or loans you might be entitled to? Do you have savings you could inject into the business?

Reduce your Payment Terms

For any new sales you make consider reducing your payment terms to remove some of the risk of late payment.

It doesn’t have to be a permenant change but at least while you’re struggling with cash flow.

Ideally request full payment up front, that way you can be sure the customer can afford to pay you before you’ve done any work or handed over any goods.

If that’s not feasible at the very least, you should be requesting a part payment in advance and the balance as soon as possible after delivery / completion.

If the thought of trying to achieve all this alone is overwhelming, then consider working with a consultant like me to provide advice and hands on support.

Get in touch to see how I can help.