By Tenika Kirkwood
I think we have all realised that sadly, money doesn’t grow on trees. Cash flow has a large impact on the success of a business and as accountants, we are often asked by our clients, how do I increase my cash flow? Today we will briefly touch on some of the simple suggestions that you can implement to help increase your cash flow, making your business more viable.
Cash flow is simply defined as the incomings and outgoings of cash, but with all the technological advances in the 21st century, there is not as much physical cash traded. It is for this reason that we suggest clients review their banking methods. If your business still accepts cheques, this may cause a delay in receiving the money into your bank account. Compare this method to bank to bank transfers, where the money is potentially received the same day as your customer makes a payment. Don’t forget to include your bank account details on your invoices so customers have it right there in front of them! By getting your customers to direct debit their payment, it means that the money is yours earlier, meaning you should be able to pay your suppliers earlier or on time, potentially allowing you to take advantage of discounts.
Another step to take is to review your terms of trade. Your terms of trade detail how soon you want your customers to pay their invoices. Some are 7 days, 14 days whilst others are at the end of the month. To increase your cash flow, your terms of trade should be no more than 7 days. You should also check the terms of trade on the bills you have received from your suppliers to ensure you are paying your bills on time. If your customers are not paying their bills regularly and on time, it is perhaps a good time to evaluate your policy on recovering these debts. You may wish to send reminders sooner rather than later! If you are ever unsure how long it is taking for customers to pay their debts, checking your software is a great start.
Usually one of the biggest expenses for your business is stock. Monitoring your stock levels can be a simple yet effective tool to increase your cash flow. If you have too much stock on hand, not only have you spent more money than you have received, you could also potentially be increasing other overheads such as freight, insurance and storage costs. Having a good balance of stock on hand, will ensure your stock and cash flow are operating at efficient levels.
I know this one is obvious and also difficult to implement but if you can increase your income, your cash flow will also increase. Ways to increase your income can include reviewing your pricing and increasing the number of customers. Sometimes a simple advertisement or improvements to your customer service levels are a simple technique just to get a few more customers through your doors.
Here at Robertson Scannell, we offer clients a service where we have access to software which can evaluate where your business is sitting compared to other businesses in your industry. This can be a great tool and allow you to visually see where your company is excelling and where improvement can be made. Cash flow is one of the target areas of this software and provides tips and strategies that you can, with our help, implement in your business to improve its current position.
If you would like any further information or would like to make an appointment with one of our accountants, please feel free to contact our office on (07) 4638 1155.