7 questions frequently asked about cash flow management for small businesses

You asked, and we answered. Here’s a quick look-through of most SME businesses’ questions about cash flow management.​

1. How to Plan Finances for the Future?

This one’s a tough cookie to crack but believe me, it’s the answer to all your cash flow management woes. For starters, if you still need to update and record your accounts clearly and accurately, do that now. You can use your monthly income and expenditure details and past cash flow records to determine how much you will spend or earn in the coming months.

2. How to Keep the Cash Growing?

A straightforward way to do it is through putting money in interest-earning accounts. If you have to withdraw funds, for example, in the case of payroll, do it just before payment.

3. How to Deal with Difficult Customers?

In the service business, the customer is king, but certain customers can spell a lot of trouble for small business owners when it comes to cash flow management. Payment is one thing SME businesses face a lot of trouble with customers – the best thing to do is set a payment policy on receipt of invoices. Don’t wait for the end of the month to receive payment, and follow up with late payers through timely letters and, when all else, phone calls.

4. How to Keep Your Vendors Happy?

It’s only sometimes possible for an SME business to make early payments to vendors and stay on schedule. However, not doing so can hurt your reputation and result in a poor credit rating. Set up payment cycles and keep up with the terms regularly to avoid any issues in cash flow management.

5. How can a Small Business Maximise the Cash Inflow?

Several creative ways exist to increase your cash inflow without incurring a profit loss. It’s all about intelligent strategy, cash flow management and careful planning in advance.

Ask for security deposits. This works if you are offering a product or service that is particularly large, expensive or one-of-a-kind, made on order. With security deposits, you will likely avoid a loss if the customer decides to walk away and have cash in advance before you start working.

Another rule to have is a strict payment schedule. Stick to it and charge extra fees for late payments or modifications after deadlines.

6. What is the Best Way to Get Payment for a Small Business?

Consider a subscription-based model for pre-payment. This works if you offer a regular service, and the advantage is that you have a secure cash pool for future costs and resource scheduling. You can also add a credit card payment option. This means more convenience to the user and more timely and reliable payments with a regular schedule. Increase the price to make up for the extra charges, and offer discounts to cash-paying customers to sweeten the pot for them.

7. How to Reduce Small Business Expenditure?

There is no specific answer to this – different businesses can employ various strategies to limit their cash outflow. Here are a few ideas:

  • Consider leasing or choosing used goods instead of new ones when buying equipment.
  • Get into the habit of regular maintenance and repairs instead of replacement.
  • Consider open-source software and limit upgrades. Unless necessary, work with open-source software that doesn’t need frequent promotions.
  • Outsource what can’t be done in-house. Instead of hiring permanent employees and spending on salaries as well as training, try outsourcing a number of tasks, such as website management or social media marketing, to save money.

To find out more about how we can help or to get your questions answered, call us on 01977 791757 or email info@stephensaccountants.co.uk