IMPROVING CASHFLOW 

 

 

Unless the manager has correct procedures in place to facilitate payment of accounts, the business will lose money.   The following are suggested methods for improving cashflow to improve payments of accounts and debts.

 

EARLY INVOICING

Invoices are the lifeblood of your business.   Send your invoices on the day the service or sale has occurred.   You will find that the speed with which you send out invoices will be directly reflected by the speed with which customers make payments.

 

CLEAR AND SIMPLE INVOICES

Your invoices should be clear and concise, particularly making certain that the date of payment is left in no doubt.   Customers will not pay their accounts if they have problems working out what theyíve been charged for or understanding when the account falls due.  Cut down on your paperwork and postage by calling your Invoice an Invoice/ Statement and print at the end of the Invoice: Please pay on this Invoice as no Statement will be issued.   You may possibly get your money quicker and customers wonít wait for Statements to arrive.

 

TERMS OF TRADE

Itís essential right at the start of the business relationship to spell out your terms of trade, with particular reference to date of payment and what will happen if payments become overdue.   Interest charges will rarely be paid, but they sometimes act as an incentive to ensure that payment is made.  You can legally only charge interest if it is an agreed part of the contract.   This can be done by including this as a term of trade on the application form to open the account and by specifying it as a term of trade at the time of sale.

 

OFFER DISCOUNTS FOR EARLY PAYMENTS  TO CUSTOMERS

Paying an account and receiving a discount may mean to a customer that this is a more attractive use of surplus cash than simply depositing the cash in an interest bearing account which is offering a lower interest rate.

 

TAKE UP DISCOUNTS OFFERED BY YOUR SUPPLIERS FOR EARLY PAYMENT

Paying a supplierís account early and accepting discounts offered for such early payments may mean  that this is a more attractive use of surplus cash than simply depositing the cash in an interest bearing account which is offering a lower interest rate.

 

MAKING PAYMENT EASY

Many businesses make payment easy by:

         Installing an EFTPOS terminal.

         Encouraging cash payments or direct debits from the customers account.

         Providing a tear off slip on their invoice or statement, which includes their address, with a self addressed envelope.

 

FOLLOW UP

Follow up if payment is not received by the agreed date.

 

TAKE ACTION

Rather than writing letters and reminder letters and reminder notes to debtors, use the telephone to make direct and immediate contact.

 

REDUCE YOUR STOCK

Practice more efficient stock control or get rid of surplus stock.   The most efficient businesses are those that can turn their stock over quickest.   Reduction in stock levels reduces the cash outflows necessary to pay for these and reduces any overdraft interest.   Only carry stock which you can sell in the near future.   You do need to balance stock reduction against your ability to satisfy your customerís needs quickly and completely, so some careful thought is needed.

 

REDUCE YOUR OVERHEADS

Pay attention to your overheads to ascertain if any of these can be reduced.

 

SELL UNWANTED ASSETS

Sell unwanted assets and use the freed up money in your business.

 

RENTING OR LEASING

Renting or leasing may give your more available cashflow than buying.

     

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