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 they’ve
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
won’t wait for Statements to arrive.
TERMS
OF TRADE
It’s
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 supplier’s 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 customer’s 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.
If we can assist further, please email TotalAccounting as follows:
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