As a small business owner, managing your finances is one of the most important tasks you'll face. One critical aspect of this is ensuring that you have strong Cash Flow management, and payment practices in place.
Financial Liquidity, or Cash Flow is the movement of funds into, and out of your business; it's a key indicator of your business’ overall health. Understanding the pipeline of your business, and managing it effectively will help you make informed decisions now, plan for the future, and ensure that your business remains sustainable.
Frequently; expenses are covered - but you don't have access to the income yet.
One of the most significant disruptions to Cash Flow is missed payments. When too many customers or clients don't pay on time, it will create a choke point; making it difficult to cover expenses, or make growth investments in your business. This is when good business practices make all the difference.
By focusing on Cash Flow management, as well as implementing effective policies and procedures, you ensure that your business stays stable, and sustainable over the long term.
PREVENT
Understand Your Cash Flow Pipeline:
The first step towards managing business finances effectively is to understand how your business’ Cash Flow works. This means having a clear picture of your income and expenses, along with any outstanding payments or debts.
Create a document which outlines all the money that flows in and out of your business over a given month, or quarter. This will help you identify any patterns within your own business or industry, such as predictable changes to income or expenses occurring at regular intervals.
Invoice Promptly, and Follow Up
To ensure that you receive payments on time, it's crucial to have a system in place for invoicing, and following up with clients or customers who have outstanding payments. Make sure that your invoices are clear, concise, and include all the necessary information; such as the payment due date, and terms.
Always send out your invoices promptly, and follow up with customers who haven't paid on time to remind them of their obligations.
Outsource Sales Ledger Management
You can take steps as a business to prevent late-payments from occurring in the first instance. Much of the time, the issue is revealed to be that invoices were missed, or never received. When this happens, it is an indicator of a procedural issue within the fabric of your organisation.
Ourselves, XFS Limited, is one such company who will provide professional support by supervising your Sales Ledger, to manage and take action upon where required.
RECOVER
Advise Late-Payers
Simply an email, a phone call, or a letter, sent to the indebted party advising them that an outstanding payment has been identified is sometimes enough - which reiterates our point that a volume of missed payments are genuinely missed.
In the case that a customer raises a dispute, you are within your rights to take legal action to remediate the situation. However, this can be a rather harsh approach in the first instance, and we would encourage you to take a few more steps before this stage, as it can very often sour the relationship between yourself and the customer.
Seek External Support
Following attempts to obtain what is owed, if you are still facing trouble you may turn to an external provider, such as XFS Limited. With the right approach, as opposed to harming business relationships, it can forge stronger bonds.
‘Bad Debt’, or payments that have been outstanding for a significant length of time are usually long forgotten by those indebted. It can create a tense situation, and handling this personally can be difficult and emotions can often cloud the path to resolution, especially as a small business owner.
Trust your own judgement to weigh up service providers, and seek a partner who matches the morals and conduct of your own business. This is how to feel confident that an amicable result will be achieved; when all interests align to realise a common goal.
MAINTAIN
Be Available to Customers
Ensure that you have a procedure in place for customers or clients to contact you, regarding payments or otherwise. As an example, with this in place it allows familiar faces who are struggling to pay on time to contact you, and potentially renegotiate payment terms which suit both parties.
Many businesses cannot, or do not want to have an office division. In this case, it is possible to outsource this, too. XFS Limited offers a range of sundry services of this nature under XFS Flow. This includes Inbound & Outbound calls, Complaints Management, Omni-channel Communications support, and more.
By implementing these tips and focusing on Cash Flow management, you can help ensure that your business stays financially stable and sustainable over the long term.
While missed payments can certainly disrupt your Cash Flow, by having effective systems and processes in place, you can minimize their impact, keep your business on track, and maintain relationships with valuable customers.
Remember; positive Cash Flow is key to achieving long-term success as a business.
