A lot of small-businesses focus on profit, but cash flow is just as important. In fact, businesses can go broke because cash hasn’t come in fast enough, even through overall they’re making a profit. Small-business software provider Xero shares four tips on improving cash flow:
KNOW WHERE YOU STAND
You need to do a cash flow forecast to get a clear picture of your cash position in the coming weeks and months.
This can be complicated; you might want to get some help from your bookkeeper and accounting software to look at past financial data, which can be used to help you forecast.
CHANGE YOUR TERMS
Look closer at your payments to calculate average debtor-days – how long on average does it takes for customers to pay you? You should try to keep your average debtor days close to or below your payment terms, because the sooner the money comes in, the quicker you can start using it in your business.
If it’s taking too long to get paid, you might want to adjust your payment terms; for instance, by bringing them in to 14 days from 30 days.
OFFER DISCOUNTS FOR PROMPT PAYMENT
You can give customers an incentive to pay faster by giving them a small discount – say, five percent – for paying on time. Depending on your business, having the cash available sooner to buy stock or pay wages could be worth more than the small amount of foregone revenue.
QUICKLY FOLLOW UP OVERDUE ACCOUNTS
The longer you leave an overdue account the less likely it is you’ll get paid, so start chasing accounts the moment they become due. Send a polite email reminder, then follow up with a phone call. If you feel awkward ringing customers for money, get someone else to help. Some accounting software sends out automated invoice reminders and tracking collections, which saves time and boosts cash flow.
Specialising in Xero bookkeeping, Notch Above is a Brisbane bookkeeper and BAS Agent located in Alderley that offers Xero setup, as well as training and ongoing support. Notch Above can take care of all the bookkeeping tasks you would rather not do, like bank reconciliations, supplier payments, payroll services, debtor control and BAS returns.
Thanks for Xero for providing this article