Small business owners will often focus on turnover, the current and next job, people management and simply getting through the to-do list. A result of this is that cash flow often suffers. At the very least, proactive cash flow management and planning can be over looked.

In the UK, we have become accustomed to winning new business, accepting whatever terms are offered, and delivering the service. This can often leave you in the difficult position of having to pay suppliers before you have been paid. Equally, significant growth opportunities can cause their own headaches when it comes to cash flow.

Cash flow management is probably one of the most important factors in business today. The much recited “turnover is vanity, profit is sanity, but cash is King” has never been truer. A healthy cash flow is vital for all businesses. Yet according to recent reports, late payment and cash flow remains the major concern for small business owners. According to the FSB, 73% of small businesses have “experienced late payment in the last 12 months” (

If you’ve already hit a cash flow shortage, then it could be for one for the following reasons:

  • Bad debts
  • Low profit margins
  • Lack of, or poor, credit control
  • Late payment/extended payment terms
  • Lack of cash flow forecasting

Avoid the bad debts:

Before taking on a new customer, what steps do you take to ensure you do not suffer a bad debt? Consider designing a credit application form. Using this not only ensures you have all the correct contact information, but can also be a way of making sure your terms and conditions of trade are known. Specify your payment terms and make sure your preferred method of payment is clear.

Using a credit checking facility can give you invaluable information about your proposed customers, and allow you to set an appropriate credit limit. Further to this, you may also consider using a credit insurance facility. This can help not only avoid bad debts, but cover you against the potentially catastrophic effects of a bad debt should the wrost happen.

Profitability Problems:

When a business is busy and new contracts are being won, the assumption is that everything is going well. Often, by the time any problems have been discovered, it is too late. Regularly check the profit you are making on jobs. Have any of your costs changed? Often we can’t control our costs, but what we can control is the price we charge. You may need to review your costs, suppliers and selling price in order to ensure your profit margin is stable.

Lack of, or poor, credit control

Let’s be honest, most people do not go into business because they fancy doing the books. It is often the last thing anyone wants to do. Because of this, businesses will often neglect some simple things that make sure you are paid promptly. Common mistakes often include quoting the wrong order number on invoices, not raising an invoice promptly, not including payment details on invoices, and invoicing for the wrong amount.

Purchase ledger departments will often reject an invoice if it is not correct. Indeed, many companies will find a reason to reject the invoice in order to delay payment and look after their own cash flow. Make sure you know what information is required, and remove the reason to not pay you!

Once your invoice has been sent, schedule a call to make sure the invoice has been received, is correct, and to confirm a payment date. At this point, you can quickly identify any issues, and correct them without causing a delay in payment.

If a payment does become overdue, make sure you have a clear policy and plan in place to get your payment in quickly. This should include a time line of calls to make and follow up emails/letters. Keep a record of who you speak to, and when. It may also be worth speaking to a solicitor or debt collection company who can assist when things become particularly late.

Late payment/extended payment terms:

Is there is difference? In short… yes. Extended payment terms are essentially longer terms than those you would normally agree to. You may work on 30 day terms, but agree 60 days to win a particular contract with a blue chip customer. This can easily be built into a cash flow forecast and managed.

Late payment however, is exactly that – late. Payment is beyond terms, and can’t be built effectively into your forecasts. Be very clear about your agreed payment terms. If customers stretch beyond their terms, then your credit control team/manager should be working with them to make sure payment is made as soon as possible, and to understand why it was late in the first place.

Lack of cash flow forecasting:

To ensure you have a healthy cash flow, or at least have the best chance to deal with cash flow issues, you should carry out cash flow forecasting on a regular basis. Producing a forecast and being able to predict your future cash flow will help you plan your future. Identifying and dips in cash flow early, allows you to find a working capital solution before you need it.


What next?

Take a look at what you are doing now, how you might be able to improve things internally, and identify what you need help with. It can often be useful to talk to an expert who can take an impartial look at your business, and help you to make the improvements needed.


Business Doctors

For many small business owners, setting up these systems and effectively managing cash flow forecasts can be very difficult. Business Doctors is a business support network dedicated to helping SMEs achieve their vision. We are experienced business people, passionate about sharing our skills and experiences. Our aim is to offer ‘hands-on’ support to business owners enabling them to overcome their individual challenges and helping them to achieve their aspirations for growth.

Whilst we operate within the consulting industry we are NOT traditional consultants. Our approach is different and involves getting into the nuts and bolts of businesses, providing practical advice every step of the way. Business Doctors has developed and helped transform hundreds of companies across a spectrum of industries, filling a gap in the market between the big four consultancies and specialist individuals.

Our offering includes a full strategic development plan that we help to structure and then provide ongoing support to aid its implementation.  Finance and cash flow management form a large part of this process and the use of good and well defined processes is actively encouraged and aided by our hands on approach.

The strength of the Business Doctor brand, combined with our holistic approach and alignment to government funded support programmes has helped us to become the fastest growing business support network in the UK.

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