For many businesses it has been a time of struggle and survival, but as we find our feet again and readjust to once-familiar, albeit now slightly flexed ways of working, there is the opportunity to focus on cash – the greatest source of funding of them all.
A growing and expanding business needs fresh injections of funding and capital to provide the much-needed working capital to facilitate that growth.
As we emerge from the most challenging period, lift our eyes and set our sights upwards and outwards on business growth, we need, more than ever before, to be focussing internally on the greatest source of funding of them all – the cash generated by the business itself.
Azets Accounts and Business Advisory Services Partner, Gareth Magee, discusses six critical ways to tap into the greatest source of funding of them all and to ensure that your business is cash-generative.
1. Issue your sales invoices as promptly as you possibly can
This is the first step in making sure that the work you do generates cash. As soon as your work has been completed, or the service has been provided, issue a sales invoice as promptly as possible, and ideally electronically.
Make sure all invoices follow a template. Accuracy is important as errors can lead to delays in settlement. Ensure your customer data is up-to-date, take time to check names, addresses, invoice numbers, customer references, purchase order numbers, narratives, VAT and invoice totals are all accurate. A little care at this stage can pay huge dividends in terms of collecting the cash quickly.
2. Have clearly set and well-communicated payment terms
It’s important your customers know what you are expecting from them in terms of payment. Ideally, set out your terms and conditions in a letter of engagement for your customers to sign, and have the terms and conditions included on your invoices and other documents. Be clear about what is being provided, how much it will cost, the project timeline, when payment is due, and what happens if payment is late.
Clearly setting out your expectations will limit disputes and delays and will help you collect the cash promptly.
3. Have a strong credit control function with robust procedures and protocols
Employ a strong credit controller who recognises the importance of using the latest technologies to improve the credit control process, who will chase every overdue payment, who will put poor payers on a stop list and who won’t be afraid to outsource tricky debts to a collection agency.
Good credit control will help you to get paid quicker which means you can pay your own suppliers quicker, avoid late payment charges, increase your own credit rating, and provide you with the cash to invest in the business.
4. Develop strong relationships with your customers and suppliers
A good credit controller will forge strong relationships – a little rapport with those who pay goes a long way. Knowing the best people to contact is hugely important and a good credit controller won’t be afraid to push your invoice to the top of the list.
5. Make sure your business and underlying transactions are profitable
It perhaps sounds obvious, but the fundamental building block in cash generation is profit. If your underlying transactions are profitable, then with the right credit control, these transactions will generate cash and working capital. Unprofitable transactions will withdraw working capital from your business.
Use the latest cloud-based accounting solutions to manage and report your transactions and financial performance in a way that helps you ensure your business is profitable. Seamlessly sync this data with the latest cloud-based cash flow tools to ensure that this profitable performance is generating cash.
6. Structure your tax affairs effectively
There are a number of tax incentives, structures and reliefs that you and your company could benefit from to ensure that you are not paying more tax than you should every year. Smart, strategic tax planning helps ensure you are minimising the tax take on the profits and cash you are generating. Tax can be a complicated area so speaking to a trusted business advisor is critical to ensuring you remain compliant whilst maximising the positive effect of the cash generated by your business.
Azets’ team of trusted business advisors help SMEs to grow and expand by implementing strategies to generate more cash and harnessing the very latest cloud and accounting solutions to analyse the cashflow in your business.
To discuss your business and cashflow or to discuss how to use technology to make your business cash generative, contact [email protected]