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How to master your cash flow in 7 days

13/04/2021

Would you like to improve your business’s cash flow but find yourself unsure where to begin? Here’s how to master your cash flow in just one week.

Whilst every business is different and will have different cash flow challenges, the following steps should help you to get a better understanding of your financial situation and identify where improvements can be made.

Day 1: Analyse your current expenditure

The first step to mastering your cash flow is to look at where your money is currently going.

Analyse your current expenditure by identifying your essential and non-essential costs.

Essential expenses are those that need to be paid for regularly, such as payroll, bills and taxes.

Your non-essential costs would be things such as certain supplies and equipment that perhaps aren’t vital to business success.

Once you have highlighted the two you can then prioritise the non-essential expenses in order of importance.

This will ensure the expenses that are most critical to your business success come first and the others can be put aside until you have enough working capital.

Knowing the difference between what your business can and can’t live without can be the difference between success and failure.

When doing this you must not let any small expenses slip under the radar. This can be a costly mistake.

Whilst a few pounds doesn’t seem like much to worry about it, these small expenses quickly add up.

Therefore, it’s important to analyse every expense, big or small, to ensure that you’re not wasting money on unnecessary items.

Any spending issues you spot during this process should be highlighted ready to be actioned tomorrow.

Day 2: Update your budgets and cut costs where necessary

Using the information you learned yesterday, now it’s time to update your budgets and cut costs where necessary.

Whether you’re under financial pressure or not, a cost-cutting exercise can always be a useful process.

By regularly checking and benchmarking internal and external costs you can save your business money and improve your cash flow without too much effort.

However, always remember not to cut back too far.

Many of the tools your business uses will bring real value to your staff and greatly improve your procedures.

So, try and calculate the value in everything you use. Then cut or replace those that aren’t giving you a good return on investment.

After all, sometimes it’s not the cost of a service but its value that is more important.

Also, when budgeting, remember that this should be a living and breathing document that grows and changes with your business.

So, take the time to regularly update your budget with new cash flow projections and realistic spending categories.

This will ensure that your budget reflects your business and its evolving needs. 

For more budgeting tips, read this blog on the 15 R’s of budgeting success 

Day 3: Review your sales ledger

Now that you have a better understanding of what money is leaving your business, it is time to assess what you are bringing in.

Cash tied up in unpaid invoices (and late payment) is one of the leading causes of poor cash flow.

If too much is tied up on your sales ledger, or invoices aren’t being paid on time, you may not have the necessary working capital to fulfil orders, pay suppliers or meet your commitments.

Therefore, your sales ledger can provide valuable insight into your business performance and should regularly be reviewed.

If you haven’t done this recently take the time to do so now.

First, look at any overdue invoices and contact those customers to understand why payment hasn’t been made, working with them to resolve any disputes.

When doing this, you may wish to target the oldest debts first as statistically the longer an invoice goes unpaid the harder it is to collect.

Alternatively, perhaps you’d prefer to start with the highest valued invoices as these will make the greatest difference to your cash flow.

If chasing any of these overdue invoices is to the detriment of newer items on your sales ledger, however, it could be beneficial to seek external help.

A debt collection agency can not only bring vital expertise to the process to help you recover the monies owed, it gives you back the time and resources to focus on the rest of your sales ledger.

Find out more about the benefits of debt collection here

Second, consider how much money you have tied up in invoices that aren’t yet due for payment.

If it’s a substantial amount and/or you believe your cash flow would be much stronger if you had access to this cash, there are a couple of considerations.

One is whether you’re able to reduce the length of your credit terms going forward, whilst maintaining your company’s competitive edge.

The other is whether a funding facility such as invoice finance, which advances up to 90% of an invoice’s value within 24 hours of its issue, would be beneficial.

Invoice finance can be used to release cash against individual invoices or your entire ledger, keeping cash free to maintain a healthy cash flow, pay suppliers on time and fulfil orders.

Day 4: Improve your credit control procedures

Yesterday, one of the things you looked at is invoices that had not been paid. Did you notice any common reasons why?

Whilst it can be tough to admit where you could be going wrong, it’s necessary to figure this out in order to make improvements.

If your customers claimed to have not received their invoices, you might want to revisit your invoicing process.

If your customers claimed that they couldn’t afford to pay, perhaps you need to apply more stringent credit check procedures before offering credit.

Or, if your customers disputed part of the invoice, maybe this is where you need to focus your attention.

There are numerous ways you can make improvements to your credit control procedures.

The key thing here is to identify any weaknesses in your credit control processes and actively take steps to improve.

Day 5: Update your cash flow forecasts

Now that you have a better understanding of what money is coming in and out of your business you should update your cash flow forecasts.

A cash flow forecast is a document that contains all your potential incoming and outgoing payments.

It’s an essential piece of financial housekeeping that shows, at any given time, how much cash is available.

Forecasting is an excellent way to monitor your cash flow and put plans in place to cover any unexpected gaps.

It’s true that an element of cash flow forecasting is essentially guesswork.

That said, it is possible to counteract some of this uncertainty by forecasting multiple scenarios.

For example, take an educated guess at a base scenario, and then create one scenario with 10% higher sales and another with 10% lower.

This will show the best and worst outcomes of any given month and will show how your business will cope if you encounter a tough period.

Learn more about cash flow forecasting

Day 6: Talk to a commercial finance broker

The finance facilities a business has in place can significantly impact cash flow.

Just having an external finance facility doesn’t necessarily equate to a healthy cash flow, and relying on the wrong facility for your needs can actually do more harm than good.

So it’s important to regularly check that you have the best funding facilities in place for your evolving requirements.

A commercial finance broker can help with this process as they will get to know your business and its ambitions and then use their extensive knowledge of the market to identify the best options for your particular needs.

This isn’t just a one-time event either, a good broker will keep in touch with you to ensure that your facility continues to work well for your business as it grows.

Even if you don’t have an immediate requirement for funding, it’s important to start these conversations early to improve your chances of accessing suitable funding when you need it.

Discover why you should use a commercial finance broker here

Day 7: Protect your cash flow

Given the impact late payment and fluctuations in sales can have on cash flow, it is wise to consider protection.

This could be to build a cash reserve to cover any cash flow gaps or secure a funding facility that you can rely on to keep you going whilst you wait for payment.

It can also be important to have a credit insurance facility in place, which protects a business’s cash flow from non-payment through insolvency or protracted default.

Use today to consider your options and decide which options would be most suited to your needs.

You could protect your entire sales ledger from late payment with whole cover. Or, choose individual invoices or customers that you would like to be protected against with selective cover.

Whilst many obtain credit protection as a standalone product, it could be more beneficial to incorporate it into your funding.

Non-recourse invoice finance facilities protect your business and additionally release up to 90% of the invoice’s value within 24 hours of its issue to boost your cash flow.

Find out more about credit protection here

What now?

Now that your cash flow is in excellent shape it can be tempting to stop there.

But the best finance managers know that maintaining a healthy cash flow is an ongoing process.

If you apply strong efforts for a short period and then relax, you’ll undo the hard work that’s been invested.

So it’s important to consistently monitor your cash flow and revisit the steps outlined above.

For more cash flow tips and guides, subscribe to our monthly newsletters

If you’re ready to explore how the right funding could support your business, call our expert team on 0800 9774833. Or, if now isn’t a good time, request a call back and we’ll give you a call at a time that suits you.

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  • Creative Capital
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  • Barclays
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  • Royal Bank of Scotland
  • Davenham Asset Finance
  • Partnership Invoice Finance
  • Close Brothers Invoice Finance
  • Accelerated Payments
  • Haydock Finance Ltd
  • MaxCap
  • Giant
  • Berkeley Trade Finance Ltd
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  • MarketFinance
  • iwoca
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  • Regency Factors
  • Lloyds Bank Commercial Finance
  • Leumi ABL
  • Pulse Cashflow Finance
  • 4Syte
  • ABN AMRO Commercial Finance
  • Santander Corporate & Commercial
  • IGF Invoice Finance
  • Aldermore Invoice Finance
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  • Investec
  • Roma Finance
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  • Ultimate Finance Group
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  • Secure Trust Bank
  • Davenham Trade Finance
  • InvoCap
  • Team Factors
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