Updated: Jan 27, 2019
I work with startups and they often ask me how they can improve their cashflow, it's a common problem and the principles are the same whether you're making sales of £5,000 or £5m. So here are my six top ways to improve your cashflow.
1. Make sure customers pay you
It sounds obvious, but if you don't chase your late payers, you might be missing out on a lot of money in your bank account. If you're using a good accounting system, you'll easily be able to run what's called an Aged Receivables Report. This is a list of your customers, values of invoices outstanding and how old these are. Armed with this report, start by focusing on your largest and oldest overdue invoices to get that money rolling in.
2. Change your payment terms
Many businesses send invoices giving customers 30 days to pay, but you might want to think about reducing those terms to 14 days or payment due on receipt of goods. If you're selling a service, you might even consider asking customers to pay you in advance or offering a discount if they pay for a year in advance rather than monthly.
3. Use direct debit
Why not ask your customers to pay you by direct debit? Knowing the money will be collected from your customer's bank account on an agreed date is so much more convenient for you than having to chase up people who forget to pay their invoices.
4. Know your big payments
Make sure you know the dates of your regular large payments and write them in your diary, or even better, set them up as recurring bills in your accounting system. Find out how much you usually pay and set some money aside every month to make sure you have the money ready to pay your bills when they're due.
5. Budget for the smaller stuff
It's easy to spend, spend, spend when you know you can get whatever you want delivered the next day using a one click payment. Those small purchases quickly add up though. Sit down and think about what the business really needs in the next quarter or year and set yourself a budget, then monitor what you've spent against that budget every month. An accounting system can make it really simple.
6. Pay your suppliers as late as possible
When you receive invoices from your suppliers, look at the payment terms and schedule those payments to be made as close to (but not later than) the due date as possible. If you're using an accounting system you can do this by simply recording each bill as it's received and also recording its due date. If you don't have an accounting system yet, make a note in your diary because that money's better in your bank account than your supplier's if it can be.
Want to know more? Why not sign up for our 3 day Cash Flow Challenge?