How to Avoid a Cash Flow Crisis – Part 2

Your approach to managing your cash flow could make or break your business.

Whether you are the owner of a small business, or working as an independent professional, cash flow is of vital importance to the health of your business. It is often said that: “revenue is vanity, cash flow is sanity, but cash is king”. What this means is that whilst it may look good to have large inflows of revenue from sales, the most important focus for your business is cash flow…

Cash comes into your business (cash inflows), mostly through sales of goods or services and flows out (cash outflows) to pay for costs that you must incur in order to produce or provide your goods or services. The difference between the two is called the net cash flow. It is, of course, desirable to maintain a positive cash flow in order to pay your bills on time, and invest in the growth of your business.


For many small businesses and independent professionals, particularly those providing a service rather than selling goods, offering credit terms to customers is a necessity if they are to remain competitive.

There is, however, nothing worse than doing your work, providing a service or obtaining a desired product for your customer, only to find yourself faced with a debtor who simply cannot, or occasionally will not, pay you.

You should never feel guilty about collecting a debt.

You are owed money for goods or services supplied. The law is on your side.

Approaching your debt collecting in a structured way will improve your chances of a successful outcome.

If by taking a disciplined approach to debt management your customer is offended, you should question whether this is a customer you really want to keep.

We provide some helpful guidelines that will help you get your overdue invoices paid quickly.

Start the collection process as soon as the sale is made, or even before, by gaining full agreement to your terms of payment. Always try to establish your customer’s credit worthiness before offering credit – there are numerous web-based credit checking facilities available, either as a subscription or on a pay-as-you-go basis.

Wherever possible request a part-payment or deposit in advance.

Never forget that the reputation, survival and success of your business may depend on how well you are able to collect overdue accounts.

Make yourself familiar with your customer’s accounts payable processes and policies.

Find out who will be responsible for approving your invoices and who will arrange for payment, ask them what they will need from you to ensure invoices are dealt with in a timely manner. Who should your invoices be addressed to? What information is required to be included on your invoice?

The key to improving your ability to collect overdue accounts is to get organised.

You can use an aged debtor analysis to provide you with a list of accounts receivable that are due and overdue.
• List accounts in order of size and due date, start by ranking largest debt first and then ranking earliest date first.
• Online accounting software, will automate this task, but even using the sort function in a spreadsheet will work.

Learn your customer’s payment cycle – When dealing with large companies, find out the last day for getting an invoice approved and included in the payment run. Call a couple of days before that date to make sure that they have all the documentation from you that they need.

Anticipate where you can – Consider giving a reminder call the week before your payment is due, especially if you have identified a specific group of customers which tends to pay late.

Treat your suppliers the way you would wish to be treated by your customers.

When cash gets tight, strong supplier relationships can mean that your suppliers will be more likely to work with you to help you get through.

Eamonn Murphy

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About the Author

Alex McCann

Alex McCann runs Altrincham HQ - a Social Media Marketing company with 100+ recommendations on Linkedin and ranked Number 1 for Social Media Marketing in the UK on Freeindex

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