In business, cash is king. Having the right amount of cash in the bank at any time means you’re able to stay on top of your liabilities, as well as continue to grow your business and take advantage of market opportunities.

Here are some ideas on how to increase case flow in your company.

1. Working capital

“Working capital” is the amount of money you have in the bank in order to facilitate the running of the business. It’s a delicate balance to decide how much to leave in the bank, as money in the bank is not being spent on growing the business.

However, working capital works for you even when it’s in the bank by earning interest and protecting your business from the threat of insolvency. If you want to know how to increase cashflow, one of the first things you should do is look into retaining more working capital.

2. Terms of trade

The terms of trade that you agree with your suppliers and customers can dictate your operating terms and procedures. They are likely to include the rights and responsibilities of your company, your clients and your suppliers. Terms of trade protect everyone in the case of a dispute, but they can also dictate cashflow in your business.

You should be regularly reviewing and updating your terms of trade with a view to improving cash flow. For example, a common problem is having terms with customers that don’t sync with the terms of your suppliers, which can create huge cash flow bottlenecks.

McDonald Vague can assist in reviewing trade terms to ensure you are protected, not only for cash flow but also in terms of security.

3. Debtors days

How many days does it take you to get paid by your customers? For many businesses this is the single biggest factor impacting positive cash flow.

Many factors impact on debtors days, including industry trends, and the resources you dedicate to chasing overdue accounts (credit control). One way to manage debtors days is by switching to online invoicing and payment. Accounting software company Xero recently compiled data from the 16 million invoices sent through their system and noticed that companies invoicing online are paid 31% faster than those using other methods.

Strong credit control procedures and a focus on the slower paying customers to get them within trading terms means an immediate improvement in debtors days.

4. Stock control

Having a lot of stock lying around that you don’t need or moves slowly ties up cash. You may have paid for that stock, but have made no recovery on it. It can be difficult to part with a large quantity of stock, but it’s time to have the sale and let the stock go. Free up the cash for more productive use.

5. Consolidation

If you’re looking to increase cash flow in the short term (to get you through a downturn or lean period), then you can cut back on growth activities and focus on consolidation. Growth often requires an overdraft or line-of-credit, and if you don’t have a positive cash flow to start with, this can just be adding fuel to the fire. If your trading revenue is always or consistently short, something radical needs to change within your company. 

Think about ways to build a stronger core business, by paying down debt, streamlining your processes, re-engaging with your top customers and refining your core competencies. 

Prepare a cashflow budget with all payment obligations in it. This sort of honest appraisal needs to occur monthly. Does your trading revenue meet the obligations or is it short? Is it consistently short or a short term blip?

If you think you might be struggling to meet your obligations contact us now.