The importance of Cashflow

Cash is king.

Cash is what drives your business forward. Cash is what is used to pay overheads, employees, taxes and buy stock. Without cash, your business stalls. To prevent that happening you need to be able to predict your cash position, enabling you to make decisions and take action to prevent you running out!

Cashflows can very quickly become seriously affected for a variety of reasons such as:

• Customers paying late;
• Fluctuating cost of materials;
• Seasonal/fluctuating demand;
• Surplus stocks; and
• Poor tax planning.

Many of these may have affected your business in recent months with your customers struggling for cash themselves and being unable to pay bills on time or even being able to place orders. With any reduction in demand it’s important to monitor your purchasing procedures to ensure appropriate stock holdings.  You don’t want valuable cash tied up in stock.

In the manufacturing sector, where costs are high and margins are low, cashflow issues are more likely to be commonplace. With high transaction volume and low value it’s also more difficult to predict what your cash balance is likely to be at any point in the future without a robust bookkeeping system to facilitate cashflow reporting.

Tips on how to take the headache out of cash control

1. Get your record keeping processes straight

You need to have accurate, up-to-date figures. Make sure your bookkeeping processes flow to help keep your records in line. Whatever software you are using there may be modules or features which you can use to help automate processes.  Modern features such as bank feeds and invoicing scanning can help save time and improve accuracy by removing human error. Efficiencies can buy you time to focus on any cash sensitive areas.

2. Monitor cash inflows 

Ensure you have a credit control process that is fit for purpose. At the very least you should be sending out customer statements, reviewing credit terms and actively chasing any overdue payments.

There may be a designated module within your software that can offer insights and provide tools to help with chasing debts. Alternatively, there are many cashflow software providers out there which will link to a variety of accounts systems.

You could also opt to use credit check solutions to review and assess new and existing customers.  These will help limit your risk of bad debts and should highlight accounts where you need to ask for payment in advance or even asking for deposits or stage payments to bring cash in earlier.

3. Manage cash outflows

Make sure you know what you need to pay and when – you don’t want any surprises. If possible, you want to keep outflows steady or following the same trend as the money coming in.  This is where a cashflow program or forecast will be able to show you what trend line your cash balance is on.

Review payment terms or enter into payment plans with suppliers as this will ensure that you are maintaining relationships. And by continuing to make payments you can keep valuable materials coming in to enable production while keeping your cash levels at an appropriate level for you to meet wages and tax demands.

If you would like any support understanding your accounts system and how it can better work for your or, indeed, with any forecasting needs please contact Shelley Minns.