New research from American Express has revealed that almost half of small to medium sized enterprises (SMEs) are gravely concerned about their business’ cash flow. The key decision markers surveyed also said that cash flow challenges often steal focus from expansion plans and other aspects of business growth, a worrying observation that has seen the accountants at leading firm Bevan & Buckland share some business critical advice.
The importance of maintaining positive cash flow from month to month may be no secret throughout the business world, but knowing where to turn to develop a cash flow management strategy that works is still perplexing for many businesses.
“The key to successful cash flow management is to optimise the amount of cash available at any one time. This means increasing your cash flow as much as you can without jeopardising other strategies. Invariably, this involves striking a balance. The tracking and controlling of credit in particular can transform cash flow management strategies for businesses big and small. After all, the faster you receive payment from your customers or clients, the more cash you will have at your disposal,” said Harri Lloyd Davies, Partner at Bevan & Buckland Chartered Accountants.
Billing early and pursuing late payers without driving away actual or potential business is vital. Making the most of your supplier credit terms is another must that will ensure suppliers can be paid at the right time and a healthy cash flow maintained. Billing clients monthly where possible via regular retainers is another sure fire route to more predictable cash flow.
The use of early payment discounts may also be beneficial and extremely lucrative when working directly with suppliers. At the other end of the scale, avoiding the temptation to buy in bulk will ensure cash is not tied up in stock, stock that could be wasted if market conditions suddenly change.
“The management of stock is especially important as Brexit Day approaches and market uncertainties become apparent. While you need to carry enough stock to be able to fulfil orders and anticipate any surges in demand caused by marketing campaigns etc., bear in mind that stock ties up cash and can be very expensive. Check stock regularly and dispose of any that is obsolete or slow moving. Increasing prices to keep your fees more competitive and in line with your specific industry is another step that shouldn’t be avoided. Customers expect annual increases, just make sure such rises are within an acceptable range,” concluded Harri.