5 Ways How Businesses Can Improve Their Cashflow

Cashflow is the lifeblood of any business, essential for paying bills, employees, and investments to keep the business running. Bad cashflow can cause major problems in your business, and once it takes over, it becomes very hard to rectify. When you’re in control of your cashflow, the financial stability of your business becomes balanced and healthy.

Regular monitoring and analysis of your cashflow is highly recommended. This is something we can help you with in detail at Nordens. If you’re looking to expand or grow your business, then good cashflow is a necessity. Without a healthy and balanced cashflow, you’re going to struggle.

We explore five ways for businesses to improve cashflow management, from the importance of maintaining a good credit rating to using new technology to enhance efficiencies.

Establish a cashflow forecast

You’re probably sick to death of us harping on about cashflow forecasts. However, forecasting is a crucial part of keeping on top of your finances. Cashflow forecasting involves predicting the money that will be coming in and going out of the business. This can help businesses identify potential cashflow issues before they occur, giving time to plan and take action. A cashflow forecast can also help businesses make informed decisions about investments and expenses as well.

Our Strategic Advisory department work with businesses to create a detailed and thorough cashflow forecast, outlining all income and expenditure to determine a set plan on how to ensure your cashflow is healthy. Whether that be because you’re looking to sell your business, expand, grow, or just want to improve your cashflow, we’ve got you covered. As always if this interests you, then please get in touch with our Strategic Advisory department and we can talk you through your circumstances and options.

Reduce payment terms

Businesses can also improve cashflow management by reducing payment terms. This involves setting shorter payment terms for customers and suppliers. What this does is help businesses improve cashflow by receiving payments faster and paying suppliers less frequently. For example, if a customer pays within 7 days and your business pays suppliers within 30 days, before those bills are paid you’re benefitting from a whole three weeks of boosted cashflow.

However, businesses should be careful not to set payment terms that are too short and risk damaging relationships with suppliers or customers. Asking too much of your clients and suppliers will result in dissatisfaction which can seriously affect your business.

Improve credit management

Let’s be honest, we all want a decent credit rating or score. Credit management is an important part of cashflow. Businesses should monitor their credit score or credit rating regularly and take steps to improve it if necessary. A good credit score can help businesses secure loans and credit on favourable terms, which can improve cashflow. Late payments or defaults can damage a business’s credit score and make it difficult to access credit in the future. There are a number of ways you can improve your credit rating so you become more creditworthy, which is essential in business.

Make sure you pay your suppliers in a timely fashion. Prompt payment rules out the possibility of being reported to credit reference agencies. As well as this, invoice your customers quickly in order to retrieve this payment as efficiently as possible. Being clear about when payment terms begin is also important, as you may be able to charge late payment fees if stated in the terms and conditions. If your customer is another business, then you have a statutory right to charge late payment interest. Furthermore, before you agree contracts with a new customer or supplier, you’re going to need to do some background work. Identifying their credit rating is imperative. A poor credit rating can mean they’re not in a good position to pay you or supply goods in time. This can lead to a whole series of problems, with the underlying consequence being a poor credit rating for your business.

Managing inventory

Another way to improve cashflow management is by managing inventory. Businesses should aim to keep inventory levels as low as possible without affecting customer satisfaction. Having lots of surplus stock and excess inventory ties up cash, which can lead to storage and obsolescence costs. Regular inventory and stock takes can help businesses identify slow-moving stock and make informed decisions about purchasing and production.

If your product stock is perishable, for example fresh food items, then this is even more important. Good cashflow isn’t necessarily all about the finances, it’s also about your product or service and making sure supply and demand are equally alligned.

Use new technology

Finally, businesses can improve cashflow management by using the abundance of new technology at their disposal. There are many software solutions available that can help businesses manage cashflow more effectively. These include accounting software, cashflow forecasting tools, and payment processing systems. These tools can help businesses automate processes, reduce errors, and make informed decisions about cashflow management. For example, platforms such as Xero are pioneers in this field. This software will help consolidate all of your finances into one streamlined app which can be accessed by you, as well as your accountant.

We’re huge fans of cloud technology here at Nordens, however we also realise that for many business owners this can be a confusing and complex matter. Here our experts will help set you up, as well as guide you through how to use your software correctly. We’ll make sure all your systems are linked up too, ensuring all data and information can be inputted and accessed by yourself at the touch of a button. If this sounds of interest to you, then get in touch with our Digital Transformation department by emailing Cloud Manager, Hollie Watson.

We hope this has outlined to you five ways to improve your cashflow. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.