An understanding of cash flow management is critical to the survival of any company, no matter what its size and this is something we help businesses with every day.
Putting in place strategies and methodologies to reduce the time that elapses between outgoings and the subsequent income can really make a difference. Seeking experienced accounting advice as to what can be done can often reveal otherwise unknown possibilities, though there are a few basic ideals to consider that we have listed here:
As important as maintaining positive customer relations may be, it is also vital that these relationships are well managed. One of the most challenging areas for any business is deciding upon a credit policy. These should be clear to understand and set out the terms in an unambiguous fashion.
An important part of managing such a policy is to control the invoice process well. These should be issued promptly, and followed up with a courtesy call to ensure the invoice has been received and there are no potential disputes over charges.
Outstanding payments should also be chased promptly. To help manage this, the use of an aged debtor list is advisable, in order that invoices can be tracked, monitored and measured against.
Early Payment Discounting
The use and advertisement of penalty charges in the terms can be an effective tool in receiving timely payment. However, these should be exercised with caution. Often, a better leading solution is to offer rewards and discounts for early or prompt payment, though both can be used successfully together in a sensible environment.
Payments in advance
For larger contracts, it is best to arrange a system of deposits and regular payments. For both parties this is a sensible approach; guaranteeing the provider can service the customer – and vice versa.
It is equally important to manage relationships with suppliers and, once again, the hardest area is defining a credit policy that works in the best way.
Having developed a good relationship with a supplier, it is always a good idea to ask for extended credit terms. Negotiating such a deal will likely require larger or more regular orders to be placed, so it is important to ensure demand from the end customer exists and is guaranteed wherever possible.
Forecasting Peaks and Troughs
A conservative projection of monthly cash income and expenditure will enable you to predict the peaks and troughs and make any necessary arrangements for further funding before the need arises. Excess cash can be better managed and capital expenditure planned for.
Accurate and up-to-date accounts, along with conservative income and realistic expenditure forecasting, will go along way to managing your cash flow. At The Company Books we have a variety of management tools and plenty of expertise to assist you with cash flow management.
One of the most important areas for any SME is existing tax obligations. Whether liable for income tax and VAT, corporation tax and stamp duty or others, accurate bookkeeping and cash planning is essential.
If the business is registered for VAT, there are certain ways in which this can be optimised too. For example, timing the purchase of major items with the VAT period makes sense, as the VAT on these purchases can be offset against the VAT charged on any sales.
With significant experience in business management, at The Company Books we are able to assist businesses with their accounting processes. By synergising our knowledge and methods with that of our clients, we provide tailored bookkeeping and accounting solutions to help companies move forward with their goals and ambitions.