9 Rules of Cash Flow

There is an old saying: “When you’re out of cash, you’re out of business.” However cash flow can be one of the most difficult challenges when running a small business. Knowing some basic rules of cash flow can help to free you from money worries. These ten basic rules will help you take control of your cash so you can enable your business to succeed.

  1. Cash Is King. It’s important to recognize that cash is what keeps your business alive. Manage it with great care, because it is the lifeblood of your business.
  2. Never Run Out of Cash. Make a commitment to do what it takes to maintain cash flow. If you don’t, you’re out of business.
  3. Know Your Cash Balance. Do you know what your cash balance is right now? You should. It’s absolutely critical that you always know your exact cash balance. Failure is inevitable if you are making business decisions based on incomplete or inaccurate information.
  4. Daily on a Daily Basis. In other words, do today’s work today. The key to knowing your cash balance is to have up-to-date information in your accounting system. Having the numbers you need, when you need them is critical.
  5. Invoice Immediately. You can’t have cash in the bank until you collect it. If there is a delay in sending out your invoices, there will be an equal delay in receiving cash. Invoice daily if you can.
  6. Never Manage From your Bank Account Balance. Your bank balance is never a true measure of your cash. The cash in your bank account and your real cash balance are two different things. Don’t make the mistake of confusing them. Attempting to mange cash flow from your bank account is a prescription for failure.
  7. Forecast Your Cash Flow. What is your cash balance going to be like in six months? Knowing this can tell you if you are managing your business or if your business is managing you. Predicting your cash balance into the future will give you critical information you need to successfully manage your cash flow today. Be proactive in your approach to cash management.
  8. Cash Flow Issues Don’t Just Happen. It is amazing how many small businesses fail because the owner didn’t recognize that they had a cash flow problem in time to do something about it. Just like any other problem, there are always signs well before cash flow issues appear. Reviewing your cash flow forecast on a regular basis will help you to prepare well in advance of having a real cash problem.
  9. Get Expert Advice. Not all business owners are comfortable with calculating projections or conducting a trend analysis. Many times they just don’t have the time. Bookkeepers, although capable, may not provide the insightful knowledge that a seasoned professional may. Wrong information can lead to wrong decisions. Have an expert (a CPA, or Financial Analyst) review your accounts to help you make the best decisions you can make for your business. It is well worth the investment.

Taking a focused and pragmatic approach to managing your cash will allow you to ultimately focus on what you want most… growing your business. That’s a recipe for success.

Top 4 Tips for Healthier Business Cash Flow

If there’s one thing that Entrepreneurs and SME owners understand, it’s that good cash flow finance is the lifeblood of any business. A healthy cash flow will help a business to thrive and develop, while poor or irregular cash flow can cause it to stagnate or even fail.

Despite this seemingly obvious fact, cash flow issues are frequently neglected until it’s too late to recover. So what can a business do to manage its cash flow effectively? Here are some top tips.

1. Collect receivables instantly

Check the financial health of a new customer before offering them credit. Don’t offer overly generous discounts, and charge a “late fee” to customers who don’t pay on time.

2. Manage your cash

Although you should encourage your customers to pay as early as possible, your own outgoings should be managed carefully. Many people believe in staying ahead of bills and paying them as early as possible, but that’s just poor cash management. Be aware of any late fees you may be in danger of accruing, and schedule your payments to keep your cash flow balanced, as opposed to trying to pay all of your expenses at once. Make sure your employee payday is at a time of the month when you’re least likely to find yourself slipping into the red.

3. Ensure sales continuity

If you offer a regular product or service, consider offering a contract whereby customers can pay upfront to receive it for a fixed period of time. You may be familiar with this technique as it is frequently used in magazine subscriptions. A reader can often subscribe for, say, 24 issues of a weekly magazine for the price of 18, so long as they pay in advance. It’s easy to adapt this structure to almost any kind of regular service or subscription-based product, and helps to promote customer loyalty.

4. Consider using an invoice finance provider.

Invoice Finance is a method of controlling your finance by getting a cash injection when you need it, without resorting to a bank loan. Invoice factoring is a form of cash flow finance that allows you to use your customer invoices as collateral in return for ready cash, in some cases up to as much as 90% of the value of your outstanding invoices. The invoice finance company will then chase up the client payments on your behalf, leaving you with the funds you need, when you need them, and time to focus on other important areas of running and developing your business. Once the invoices have been paid, the finance provider will release the remaining invoice return minus their fees.

When using invoice finance, it’s important to select a factoring company that is well reputable and well-regarded in the industry. Make sure you check out any company you approach thoroughly, and make sure they have the appropriate accreditation. They should also be able to increase your funding as your business grows and develops.

Improving Business Cash Flow

If you have a small to mid-size business, it is highly likely that you suffer from business cash flow concerns. A steady cash flow not only keeps your business solvent, but it also enables you to grow your business because you lack working capital. The most common factor in lack of working capital is offering payment terms to your customers.

One of the most frequent negotiating terms for new customers is the amount of time they have to pay you for your products or services. A small business owner will accept the payback terms of 30, 45, or even 60 days to get the business. However, you are expected to deliver your products or services immediately and wait for your payment for up to 60 days.

It doesn’t take long to have a great amount of your money tied up in unpaid invoices if you offer payment terms to your customers. It is very possible to have more money in accounts receivables than in cash in the bank. Eventually you will hit a wall. You won’t be able to offer any more product or services until your unpaid invoices are paid. You won’t be able to make payroll or pay your suppliers.

Your unpaid invoices can be an asset. How? They can be turned into needed funds through invoice factoring, also known as invoice financing and invoice discounting. What is invoice factoring?

For example, if one of you customers is a very reputable company such as BT and they owe you £10,000 in 45 days, are you pretty sure they’ll pay? That invoice is almost as good as having the £10,000 in your hands now. And if you have unpaid invoices from several reputable companies, the invoice factoring company will be glad to take those invoices off your hands in exchange for instant cash now.

You will not be in debt to the invoice factoring company because they do not loan money to you. Instead, they actually buy your invoices at a small discount. It is easy to qualify because they do not look at your business credit in order to buy your invoices. They look at the credit of the companies who owe you.

Now it is the factoring company who waits to be paid rather than you the small business owner. This plan works well for small businesses that have turned away new business because of a high percentage of unpaid invoices that hinders cash flow.

Factoring and invoice finance services are commonly used within the recruitment industry as well as many other industries that send out large numbers of invoices very frequently. If your business is suffering from cash flow problems and these are preventing you from operating efficiently or expanding then a factoring service may well help to relieve these problems. An invoice financier will be able to tell you the most suitable service and whether or not your business is suitable for this type of service, there are many factoring companies online that can provide these services.

What to Look for When Selling Your Invoices

If you are worried about your business’ cash flow spiraling down, then maybe it’s the right time to make a major decision to improve the situation. Low cash reserves are not indicative of your organization’s true financial health. Rather, it sometimes happens when a company is growing fast, and in the process, creates invoices for receiving payments from its customers. These invoiced payments are not always received immediately. Usually, there are invoice terms such as 15, 30, 45 days or more that are provided to the customers. Often, these payment terms are extended for the customers’ convenience. During this period, an urgent requirement for cash may crop up. Your business may need money to pay your employees’ salaries, to pay the rent or the electrical bill, or for buying new equipment and other expenses. In such a critical situation, conventional lending could be get difficult to get. For a solution, you can turn to professional invoice factoring companies that can fund your business with immediate cash after buying your receivables or invoices.

As a business owner you would surely want a company that will provide cash in quick time, pay personal attention to your financial needs, and deal with you in a professional and empathetic manner. Furthermore, you also want to be sure that the A/R factoring company is a principle funding company, and not a broker. Principle invoice factoring companies are financially strong and use their own capital for direct funding that makes the processing fast and efficient. The company will help you expedite funding arrangements by purchasing your invoices at a discounted rate. You will receive the required cash that is equivalent to the face value of the invoices you sell. You can factor single or multiple invoices as and when needed. So, this could be a great funding option for your business even amidst the gloomy economy and indifferent credit market.

While choosing an A/R financing company, you can consider the following factors:

1.Quick Turnaround Time
During urgent cash requirement, even an additional day taken for processing can make or break a situation. So, the company’s services should be highly responsive to meet your instant financial needs. Ideally, an efficient company takes about 4 days to approve funds, and for subsequent applications, it can provide funding within 24 hours.

2.Reliable Service
The company you choose should be reliable so that your cash flow issue can be solved on an urgent basis. It should be able to complete the invoice verification process, credit approval, processing invoices, and remittance of funds quickly and efficiently.

3.Amount of Cash Advance
When you are desperately looking for funds to pay off your business’ short term obligations, you need maximum of cash as an advance. If you have a current and valid invoice, a good company can pay up to 90% of invoice value in advance.

4.Convenience Provided
You should feel comfortable dealing with your chosen company. Convenience provided by the company can lead to a long term business relationship. A good company provides flexibility considering your business situation, and that can save you from delays and the hassles of processing.

5.Simple Application Process
While factoring, the last thing you want is a long and complex application process. Make sure the company is not charging any fees or penalties, except the discount fee. Also, there should not be any long term contracts to bind you.

Before availing such services, you can check for online information related to factoring or call up a relevant company for more details. This will help you clear your doubts before making the final move.