Keeping on top of your cash flow is essential. While your long-term goal may be to build sales and profitability, in the short-term it is even more important to ensure that you have enough cash to keep trading.
Managing your cash flow
The starting point for managing your cash flow is looking forward, so that you can anticipate your future cash position. Your budgeting process should give you an expected cash flow over the coming months and an indication of how different your actual cash flows might turn out to be.
This sort of approach gives you extra time to deal with potential cash flow problems. You may need to raise additional finance, and it'll be easier to do so if you can approach lenders or investors well in advance.
If you can't arrange extra funding, you should be prepared to limit how much you sell on credit. You might also look at how you manage your creditors to see what opportunities there are to delay payments.
Credit control
If your business sells on credit, effective credit control is essential. Many businesses suffer severe cash flow strain caused by customers who fail to pay on time.
Ideally, your initial credit checks on new customers will help ensure that they're not only good credit risks but also have a record of paying on time. You should make sure they're aware of your terms and conditions of trade, including your credit terms. As part of this, you may want to remind customers of your right to interest on late payments.
The sooner you can invoice after each sale, the sooner you're likely to be paid. That can then be backed up with a systematic routine for chasing any late payments and collecting debts.
