Positive cashflow is vital when running a successful business. While profit may be your end goal when it comes to year-end, it’s access to liquid cash that actually keeps your company trading day-to-day, and provides the foundations for your financial success.
Only 49.5% of UK small businesses have positive cashflow according to February 2018 stats from Xero’s new Small Business Insights page. So that’s more than half of the country’s SMBs that are expending more in operating costs than they’re bringing in through everyday income.
So how do you manage your cashflow effectively and ensure that your company’s cash inflows outweigh your cash outflows?
We’ve pinpointed 3 key areas that will improve your cashflow position.
1. Make it easy to get paid on time
37% of UK SMBs have experienced the negative impact of late payment on their overall cashflow position as a company – with slow payment of invoices and mounting aged debts having a significant downside on your business’s ability to maintain positive cashflow.
The faster your customers pay you, the bigger your operating cash inflows will be – and that’s a huge element in getting your cash pipeline looking stable and predictable over time.
To improve your chances of getting paid on time:
- Use online invoicing in Xero – Xero online accounting includes online invoicing as standard, allowing you to quickly email electronic versions of your sales invoices out to customers. Electronic invoices get paid more quickly and can even include payment buttons so customers can pay you with a single click
- Choose the most effective payment methods – when you make it easy for customers to pay, that removes the barriers to speedy payment. If you’re a customer-facing retail business, invest in the new breed of card readers from iZettle or Square and quickly take card payments in person. For service-based business with regular monthly bills, or ad-hoc project work, offer Direct Debit payments via GoCardless.
2. Chase up your late-paying customers
The average SMB is owed £63,881 in late payments. That’s a staggering £63k of income that your business could be using to invest in and grow the company.
With so much at stake, it’s important to chase your late-paying customers as quickly as possible, and to be aware of your overall debts at every stage of the business cycle.
To get those late invoices paid:
- Keep a close eye on debtor tracking – It’s vital to be proactive about reviewing your late invoices (or ‘aged debts’ in accountant-speak). Check your ‘Outstanding invoices’ figure in the Xero Dashboard, and run your ‘Aged Receivables’ report regularly to see who owes you what, when it’s due (and who’s missed the due dates).
- Automate your credit control function – Chasing late-paying customers via email and making credit control calls takes time. So there’s real value in using a credit control app like Chaser to automate the whole process. Chaser sends out payment notifications and chaser emails for late invoices, all linked directly to your Xero invoicing.
3. Work closely with your accountant
One the key advantages of working with an accountant is the ability to call on a huge wealth of practical experience when it comes to cashflow management.
At Day Accountants, we understand the importance of improving your cash position and we work closely with you to improve your financial model, enhance your cash position and give you the best possible future view of any financial issues that may be on the horizon.
To improve your cashflow, we’ll
- Run cashflow forecasts – using your real-time Xero data, we’ll run regular cashflow forecasts, so you can spot the seasonal dips and overcome any cash pitfalls.
- Enhance your cost management – by reviewing your operating costs and expenses, and helping you identify areas of cost saving that will decrease your cash outflows.
There are more cashflow tips in Xero’s '5 rules for managing small business cashflow' guide
Talk to us about improving your cashflow
If you’re struggling with your cashflow and want to start getting in control of your cash, please do get in touch with us – we’d love to help you achieve that positive cashflow position.
Talk to us about payment technology, automated credit control and cashflow forecasting