Sema Fongod, copywriter of Invoicediscounting.uk.com reveals 3 key steps in boosting working capital. Simple, straight-forward and practical.
Cashflow is the lifeblood of any business. It represents the income generated through services rendered and products sold, and money going out to cover expenses and administrative costs.
Managing business cashflow could be a daunting challenge because income can come from a range of sources with varying timings. Keeping a healthy cashflow is all about striking a balance between paying for overheads and the receipt of income. There’s one thing every successful business has in common – they pay less money out than they receive.
A business might look good on paper but without cashflow, there is no available working capital. Income statements might show a healthy sales balance but a business could be in an unfavourable cashflow position if a majority of the income is locked up in outstanding invoices.
One of the common mistakes made by business owners is allowing customers and clients to buy now and pay later. This is becoming a trend as businesses now tend to trade on credit terms of 30-90 days.
Statistics from the Federation of Small Businesses (FSB) show that more than 70% of small enterprises have experienced late payment in the last 12 months. A further two-thirds had to write off invoices by 20%, with the average loss being in the region of £5000.
Proper forecasting can enable a business to overcome unforeseen costs and finance growth. The primary goal of every entrepreneur is to ensure there’s an overflow of cash in the business. This working capital then allows the business to make early payments so that it can benefit from vendor discounts and special deals.
3 Rules to Boost Cashflow
What could be more important than cashflow? Here are a few tips that can bring about a steadily growing cash pool.
- Avoid credit terms: This is simple. For businesses that are looking to sell, it’s important to request payment before rendering a service or delivering a product. If the services are delivered over a period of time, structure the payment into fixed monthly instalments.
For businesses that are looking to buy, pay every bill on time to avoid late payment fees. Early payment could also be a profitable move if there’s a chance that the business could benefit from supplier discounts and offers.
- Secure an invoice finance facility: Invoice finance is an arrangement tailored to businesses that have funds locked up in sales invoices. It’s a cashflow solution where funds are secured against the payment of invoices coming in the future.
A finance provider advances up to 95% of the value of outstanding sales invoices within 24 hours, once the invoices are raised. The remainder invoice value balance is paid to the business once their customer settles their bill.
The facility could also include a debt collection service where the finance provider chases the customers for payments. This provides added certainty about the ability of the customers to repay their debt.
- Invest the cash reserves: Once there’s some cash overflow left in the business, investing some of it could be a very wise option. With interest rates for savings accounts being at an all-time low, accumulating funds in the bank does nothing to accelerate growth. Talk to an investment professional as they could help you identify profitable investment opportunities.