EFM offers practical advice and recommends steps which your company can take to improve your businesses cashflow.
In the meantime, here are a few of our top tips for better financial management:
- Use financial records: Harness the power of financial data to track and trend. Management reports are useful business tools and if you are unable to produce these, consider getting additional resource. Forecast and use the cashflow analysis to help you prepare for and predict short term needs.
- Bill early and stage bill if necessary: Send a bill as soon as you have rendered a service or sold your goods. For longer term contracts, arrange for stage billing or, even better, upfront payments.
- Tighten credit control processes: Make a phone call within one week of raising the invoice to check it has been received, call within two weeks to check it has been authorised and write a letter within 30 days of an invoice becoming overdue. Escalate the seriousness of letters through to legal action if required and you can also claim statutory interest at 8% over base plus costs for overdue amounts. Always keep notes of actions taken and conversations.
- Avoid invoicing errors: Ensure that payment instructions including your bank account are clearly marked on the invoice. Watch out for excel rounding, VAT number, order details and other such information.
- Avoid ‘no pay’ or ‘slow’ customers: Be upfront with your customers about your credit policy and terms and understand their internal payment and authorisation procedures. You should only trade with customers with a good credit record.
- Initiate a regular payment system: Encourage your clients to pay using a direct debit or standing order or by online banking or BACS – this ensures you can use the funds more quickly, minimize the payment cycle and is cheaper in bank charges for you and your customer.
- Discount: Offer incentives for prompt payment but assess the cost and benefit of this approach and only give the discount if your customer keeps to their part of the bargain.
- Bartering: Swap your services or products with a customer who has products or services you need. Settlement of invoices is immediate.
- Keep to budgets: Make sure budget holders keep to budgets. If there are any variances, investigate.
- Understand your costs – both fixed and variable: This will enable you to make the right cuts, if and when the need arises. You will also need to understand which products are making you money – and which aren’t. Understand which costs are essential and which can wait.