Cash Flow Forecasting
- Setting a target
One of the best ways to have a good control over cash flow is to have a frequent forecast that is properly maintained. If the owner gets a weekly forecast, he can easily have an outlook for his business for the next year or so. If the owner is given targets to achieve, he remains motivated and interested and derives satisfaction in achieving these financial targets.
Keep terms of payment absolutely clear
It is important to have clear payment terms from the outset. This is because when you are not clear in your mind, you cannot be sure about receiving payment from clients on time. Also, you cannot hope to control cash flow when you are not even aware of a payment becoming due. Even government has passed a bill making it compulsory for builders to make payments in their supply chain inside 30 days. His makes t clear that feasibility of businesses in other industries can be improved if payments are made and received in 30 days. If you are making payments to your employees every 30 days, it is only natural if you demand payment within 30 days from your clients.
Timing of invoice
If you are a service provider, you should invoice the client as soon as you have completed his work at your end. A delay of a few days on your part encourages the client to delay in making a payment. In fact, you can issue invoice through email so that it reaches the client at the same instant and he is forced to take action very soon.
Provide easy payment options
It is clear that every client has his own set of circumstances and paying by cash is not the easiest of option for all the customers. You should think along the line of making it very easy for all your clients to make payments to you. Remove payment by cheque as an option as it delays arrival of money in your bank account. You can give discount to clients to encourage them to make online payments.
Reduce debtor days
There is always a gap between the day of invoicing and the day on which you receive payment. But if you make an arrangement whereby you directly debit the account of your clients for their due amounts is a very good way to make sure that you get payment on time and that too by lowering the costs of collection process. Many businesses that have switched to direct debit system of payment have benefitted a great deal on the front of cash flow. Customers have no objection to payment through direct debit as they have to make additional payment for a penalty when they forget to pay in time.
Technology and cash flow
More and more businesses are today turning to cloud based accounting to find that they have much better control of cash flow. Owners are never far from their business accounts as they can log in from anywhere to have a look at the receipts. Similarly, accounting software has made lives easier for all businesses. They also have help and assistance just a phone call away.
Cash flow is more important than profit margins
Most of the small businesses know about their profit margins though they are not sure about cash flow. This is a very common mistake and one that results in a very high failure rate for small businesses. Keeping cash flow in order ensures profits in order. Business owners must pay special attention to clients who pay on time rather than focusing upon big clients and profit margins.
Have someone in the company to closely monitor cash flow
With fixed and regular expenses, it pays to have an employee keep a watchful eye on all the receipts and payments. It is this habit that makes sure that there is sufficient cash with the company in the bank account at the end of the day.
Keep the bank in the know
Whatever the situation of cash flow, it is prudent to keep your bank informed about it. This ensures that they are always aware of any sudden cash outflow. Banks are always appreciative if they are kept in the loop by their account holders rather than getting a shock when finding huge cash outflow on their own.