When you’re in the business of generating sales, you have to work hard. Because, as we all know, not every lead converts into a sale.
It’s no use celebrating when someone agrees to enter a deal with you. You only complete it once payment lands in your company bank account.
So, cash keeps your company going. And it’s why it pays to remember four tips for managing cash flow:
- Make cash flow forecasts
Keep updating a three- to six-month cash flow plan. Also, make projections for the next 12 months (useful if you ever need longer-term financing options).
Always cross-reference your plan with your bank account. Calculations count for nothing if the cash isn’t physically there. And as soon as your plan goes off course, adapt it.
You may already know this next point too well: some people will never pay you. Make sure you have enough cash in the bank to cover unpaid debts.
You need a good bookkeeper to keep on top of ledgers and bank reconciliations. Remember, forecasting based on bad data means failure.
- Manage your spend
Strike up a good working relationship with your suppliers. To gain their trust, explain your financial situation—it may come in handy down the line, especially for negotiations.
Try to work discussions to your advantage and bring in the items or the services you need now and agree to pay for them later.
Don’t always choose the lowest price. Flexible payment terms can be more beneficial to you over time instead of a low-price lump sum now.
- Getting paid
Find out whether your clients and customers can even pay in the first place, and do it as early as possible to avoid disaster.
If you’re not already managing invoices yourself, use people who you trust to do it quickly, accurately and who will chase all money owed to you.
And although it’s a good idea to offer flexible credit terms to clients, avoid gaining a reputation for being too soft a touch—that’s business suicide.
If you have a larger business with a sales team, your sales reps are often the best people to unlock payment problems as they’ll have a good relationship with the customer at the start of their journey with you.
When it comes to the most important part—getting paid—make it as easy as possible for customers to pay you using the latest technology.
- Create a culture
Most of all, make managing cash flow a part of your business’s culture. Everyone should understand how a sale doesn’t count until payment arrives.
Ensure that sales people know the limits of your business terms so they don’t offer too much, and be transparent with what customers should expect from you—never overpromise.
With a working culture focussed on trust and cash flow, you help put your business in a stronger position.
Keith Simmons is the Group Financial Controller at Peninsula. He joined the company almost 13 years ago, after spending his early career in Financial Services. Part of his role includes managing cash flow for the Peninsula Group.