Avoid Cashflow Problems: How to Guide

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Avoid Cashflow Problems

Avoid Cashflow Problems: How to Guide

Cashflow problems are the primary reason why more than 70% of UK businesses go under in their first year. This statistic is fairly shocking, the reassuring fact is that there is a lot that companies can do to manage their cashflow effectively.

We have put together our top tips to help you avoid cashflow problems and become a business success story.

1. Always run credit checks on companies that you do business with

Many people think or forget that it’s not important to vet companies before doing business with them. Doing so is an important method of avoiding cashflow related problems further down the road.

There are a lot of ways to run credit checks such as ordering an online credit rating from credit reference agencies or checking your potential customer’s payment record.

You expose yourself to the risk of not being paid if you have not checked up on a potential new client.

2. Encourage prompt payment

If you have not been paid by your customers, you will have to pay your suppliers even. Encouraging your customers to pay you promptly is therefore an effective way to avoid cashflow problems.

Try offering favourable payment terms to people who pay early and refer to the Late Payment of Commercial Debts (Interest) Act of 1998 on your invoices. This regulation allows companies to charge interest on overdue amounts.

3. Manage your budget carefully

Before you do allocate funds, make sure you know what the return on investment is likely to ensure and be that you can afford to spend the money in question.

It might sound good but obvious budget management is a key step to good cashflow management. Do not be tempted to spend money on promotional activity that has not been accounted for in your marketing plan.

4. Manage your accounts carefully

Do you know who owes you what and when payment is due? Keeping an invoice book detailing when invoices were sent out and to whom, as well when they were paid is a simple yet effective way of keeping on top of your finances and avoiding cashflow problems.