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Small Business Advice - Five Top Tips for Steady Cash Flow

A steady cash flow is essential for businesses, no more so than for smaller businesses. In fact, poor cash flow is the reason why one in every four businesses don’t survive past the first year of operating and more than half of businesses don’t manage to get past the first five years. Cash flow is the term used to describe the money flowing in and out of a business and is usually measured over set periods – monthly, quarterly and annually.

Today we’re going to take a look at some of the most common cash flow problems faced by SMEs and give you some tips on how to either avoid them or how to deal with them.



As a new business, it can be tempting to leave the bookkeeping duties as you concentrate on the workload involved in setting up a new business. While this is understandable, if you don’t keep on top of your bookkeeping, you’re sure to come up against problems before too long. Make sure your invoicing is organised with consistent invoice numbering and keep a record of amounts and payments so that you know exactly what is owed to you at any given time. Either use an accounting system and keep it up to date or consider using the services of an accountant, many of which cater specifically for SMEs.



Many small businesses experience bad debts, monies owed by customers that are difficult to obtain - bad debts can cripple a small business. If you put a proper credit control system in place you can reduce the likelihood of bad debts. Keeping your books and using a credit control system is relatively simple – you just need to set out a time to send reminder emails or letters on a regular basis.



Conducting a credit check on a potential customer before offering them credit really is essential for SMEs. If you do discover a poor credit record, you can take steps to ensure that you receive the money owed to you such as asking for a deposit up front or insisting on milestone payments as portions of the work are completed or submitted.



If you set credit terms that are out of sync with the credit terms set by your suppliers, then you’re likely to encounter negative cash flow which can build up and get worse over time. As an example, if your customers have 30 days in which to pay you but your suppliers need paying within 14 days, this can lead to cash flow problems. If possible, renegotiate terms with both customers and suppliers to even out the cash flow. If this isn’t possible, then you could offer early settlement discounts to customers or use factoring – when a financial institution lends you short term cash that’s secured against the value of the invoices you’ve issued.



A cash flow forecast will enable you to see which months you can expect to see a cash deficit and in which months you can expect a surplus of cash. This will give you the insight needed to see how much cash your business will need over the next year or so in order to survive. You’ll be aware of any discrepancies and can adjust your forecast to make it more accurate for the future. You’ll also have the information necessary for making any important decisions such as when to cut an expense or when to make a capital expenditure.

If you still experience cash flow problems due to customers who are just refusing to pay, then it’s time to engage the services of a commercial debt collection agency to recover what is owed to you. Opting for a no-win, no-fee solution is usually the most cost effective way of doing this.