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Increasing the flow

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Effective cashflow management is as critical to business survival as providing services or products. Below are some of the key methods to help reduce the time gap between expenditure and receipt of income.

Customer management

  • Define a credit policy that clearly sets out your standard payment terms.
  • Issue invoices promptly.
  • Consider offering discounts for prompt payment.
  • Compile an aged debtor list to identify specific invoices that are overdue.
  • Implement a process for chasing outstanding payments - this could involve a reminder letter, followed by a telephone call.
  • Calculate the 'debtor days' so that you can monitor your business’s overall performance in collecting debts month by month.
  • Consider exercising your right to charge penalty interest for late payment.
  • Negotiate deposits or staged payments for large contracts.
  • Sell your invoices to a third party in return for a percentage of the total.

Supplier management

Considering alternative suppliers who may provide goods or services at a lower cost is not always beneficial to the business. Cost reviews are of course essential to ensure the business is spending its money competitively. Information about lower costs can be used as a negotiating tool with existing suppliers but service and quality are also key aspects of supplier management.

It is no good for example changing telephone suppliers if the level of service causes business disruption. Instead consider the following:

  • Negotiate better terms of settlement with suppliers.
  • Discuss with your key suppliers ways to reduce overall costs through the size or timing of orders. Giving your suppliers incentives such as large or regular orders may help but make sure you have a market for the orders you are placing.
  • Alternatively consider reducing stock levels and using just-in-time systems.

Asset management

Buying plant such as equipment and vehicles outright can result in a huge drain on cash so consider alternatives such as leasing or buying them on hire purchase. If you are VAT registered and you do decide to buy a major piece of plant, consider buying at the end rather than the start of a VAT period. This can improve cashflow because the VAT outlay on such purchases, which is generally recoverable, can then be set against the VAT you need to account for on your sales, thus reducing the net VAT liability payment.

Taxation management

You may be liable for several different taxes including PAYE, income tax, corporation tax and VAT. It is essential to keep good records to help you calculate your liability and complete your returns accurately. This is vital not only for cashflow management but to avoid further costs in the form of HMRC penalties!

A Business Payment Support Service (BPSS) has been launched by HMRC to help businesses struggling to meet tax, national insurance or other payments owed to HMRC. HMRC staff will review your situation and discuss temporary instalment payment arrangements tailored to your business circumstances.

If you are concerned that you may not be able to pay amounts that are owed or will soon be owed to HMRC, you can either contact the BPSS direct or contact us for assistance on how it can operate.

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