Tag: cash cycle

20 ways to improve cash flow

Cash

Cash is vital to you and your business, lack of cash kills businesses.

So how can you improve cash flow:

  1. Prepare a detailed cash flow forecast, schedule your direct debits and standing orders, knowing how much cash you need and when will help you focus on where the cash will come from
  2. Invoice your clients as soon as you can, often small businesses invoice late and this just lengthens the time it will take to collect payment
  3. Get stage payments on large contracts
  4. Negotiate payment terms with your suppliers, try to at least match the client payment terms with the supplier terms
  5. If you are able to spread payments do it, for example, most insurance companies will offer you that chance to spread the payments over 10 months
  6. Adopt ‘just in time’ for stock items, don’t carry more stock than you need to
  7. Pay sales commissions only after the client has paid
  8. Change weekly payrolls to monthly where possible
  9. Sell assets you don’t need
  10. Sell obsolete and slow moving stock
  11. Consider paying mileage allowances rather than owning company cars
  12. Chase your debts
  13. Get a good credit rating as it will help you negotiate better supplier terms
  14. File your accounts and tax returns on time to avoid penalties
  15. Credit check your clients and agree terms based on their credit history and rating
  16. Diversify to smooth out seasonal trends
  17. Control your costs and reduce them where possible
  18. Make cash collection a KPI for your business
  19. Finance your fixed asset purchases
  20. Use Invoice Finance if your clients demand long terms

steve@bicknells.net

The Cash Cycle – What is it? what is your Cycle? How can you improve it?

As the saying goes, Sales are Vanity, Profit is Sanity and Cash is King. The Cash Cycle also known as the Working Capital Cycle helps you to quickly understand how much cash you need to run your business.

Here is a great example from Steve Grice for an average business

Average time to collect payment from customers           60 days            plus..

Average days sales held in stock                                   25 days            less..

Average days taken to pay suppliers                             35 days            equals…

Cash cycle                                                50 days

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000, you will need cash of £136,900. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

http://stevegrice.wordpress.com/2012/02/06/working-capital-cycle/

Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html

This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.

Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.

CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

But Credit Management may not be enough on its own, perhaps Invoice Finance might help?

Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.

  • Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
  • Invoice Discounting is ideal if you have an annual turnover above £500,000
  • Invoice discounting is suitable for business with an established credit control department.
  • Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
  • Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.

For more details look at http://www.rbsif.co.uk/invoice-financing/invoice-discounting

If your business sells to end customers you might consider Card Processing Advances http://www.credit-card-processing-loans.co.uk/

You must be masterful. Managing cash flow is a skill and only a firm grip on the cash conversion process will yield
results.

steve@bicknells.net