Five ways to make sure the cash flows

NO SMALL business owner wants to hear yet more about how tight lending conditions are at the moment. The pressure this can put on a business’s cash flow is often unbearable and is one of the most common reasons many businesses buckle. But before blaming the banks, there is scope for entrepreneurs to work with what they’ve already got. Recent analysis published by Deloitte shows that British companies are sitting on £60bn worth of unproductive working capital that is unnecessarily tied up in the business. To learn how to tap into this potential treasure trove, we asked the experts for their tactics.

1. BREAK OUT OF THE FINANCE MINDSET.
Working capital, and the management of working capital, should not be seen as one department’s responsibility. Everyone from sales through to procurement and customer service needs to be collating data and watching out for opportunities to speed up payments and extend credit facilities. Entrepreneur Rupert Lee-Browne of Caxton FX says: “Making sure everyone in your organisation has some understanding of this is really important.”

2. ROLLING WEEKLY FORECASTS.
More regular cash flow forecasts can help you spot a problem before it’s too late. Garrath Marshall, a director in Deloitte’s entrepreneurial business team, says: “Identifying future cash surpluses, deficits and developing cash-generating initiatives allows you to take action and be ready for any future cash requirements.”

3. DON’T SURPRISE THE BANK.
Regular communication with the bank is a very good idea. “Going to them cap in hand when you’re in trouble will only get you punitive rates,” says Lee-Browne. Keeping the bank informed and not being afraid to ask for additional funding is the best approach.

4. SCRUTINISE PAYMENTS.
Don’t miss out on what you’re owed. Scrutinise your tax payments, especially VAT. “Many businesses overpay and fail to claim back possible rebates. Take advice if not clear on how to do this,” says Andrew Harris, an associate partner in Deloitte’s Corporate Advisory team.

5. GET THEM TO PAY UP FASTER.
Taking a more proactive approach to collecting money can really help speed up payments. Marshall recommends contacting the client before the payment is due to ask if their expectations were met. This allows you to confirm payment terms and resolve any invoice disputes before it’s too late. Bobby Lane, a partner at accountancy firm Shelley Stock Hutter, says: “Offering things like early payment discounts can speed things along. Talking to suppliers to see if you can extend terms with them is not a bad idea either.” Introducing and negotiating official supplier payment terms rather than simply going with what suppliers usually offer is one way of doing this.