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Steps To Improve Cashflow

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Thankfully many of the ways to ensure a strong cash flow are in your own hands as a business owner. And one of the many important ways to ensure this is cash flow finance!

Building robust business routines from the get-go to help healthy cash flow is very important. Here’s a checklist to get you started on the right path.

Invoicing

  • Check that every invoice is accurate before it leaves the building. Errors create disputes. Disputes create delays. Delays kill cash flow.
  • Show payment terms on every invoice, including the actual due date, not just “30 days” but the specific date by which payment must arrive.

Credit notes

  • Monitor the volume and value of credit notes you raise. Anything above 2–3% of invoice value is a signal of a systemic problem in your invoicing, your delivery, or both.
  • Segment credit notes by reason. Patterns point to root causes that can be fixed.
  • Require one named person to authorise every credit note. It introduces accountability and reduces any casual use.

Debt performance

  • Set debtor day targets and review them at every board meeting.
  • Implement a trigger so if your overdue debt profile deteriorates past a defined point, action is automatic.
  • Benchmark your performance against sector norms.

Commission

  • A sale is not a sale until it is paid for. Pay sales commission on paid invoices, not invoiced amounts.

Insurance

  • Credit insurance can really help, especially if you have a cluster of customers that disproportionately represent your ledger.
  • Look at specialist cover for export debts because the consequences can be harder to manage in places where you don’t have a ‘footprint’.

Credit

  • Have a robust credit control policy detailing important milestones, such as when debts are chased and when you are start looking at legal remedies.
  • Issue statements at the same intervals every month. They should be routine and regular.
  • Maintain a very accurate ledger. Make it a daily routine if you need to.  An accurate ledger is the foundation of accurate collection.
  • Back up your sales ledger every night. You can’t collect if you don’t have the data.

Escalate

  • Have systems set up with your legal advisers to escalate without delay. Dealing with escalation promptly shows you mean business. This is especially important for international payments. Have international legal reach and capabilities in place before you do business abroad.