Christmas can be a lucrative time for business, but it can also be expensive. Servicing high customer demand costs money – overtime payments for staff, Christmas bonuses and hospitality, and increased winter energy costs means any extra revenue has the danger of not actually increasing your profit margin at all.
When your assets are all tied up in premises, stock, and sales ledger but you have no actual cash to play with, things can get a little worrying. Here are our top tips for easing that temporary cash flow crises, whatever time of the year you find things a little tricky.
1 – Get your outstanding invoices cleared up.
When customers are buying your products and services yet take their time paying you, then you could run into difficulty. The trick is getting outstanding payments in and adding to your bank balance ASAP. If you have any overdue invoices, then pick up the phone right now and find out what the issue is. It may be something as simple as an incorrect invoice amount that’s pushed your payment to the back of the queue. It could be something as serious as a company going bankrupt. The sooner you know which it is, the better, and if you can get that cash out of their bank and into yours, then that will help you a lot.
Did you know – UK businesses are waiting a whopping 74 days to be paid? This is outrageous, and could cause many businesses long-term damage. Some industries are better than others, but the fact is that slow payment is a reality for too many SMEs. Being prepared for this delay is the key to it not impacting too much on our company’s financial viability.
A simple way of making sure you get paid (take it from someone who has worked in a purchase ledger department of a large organisation) is to make sure your invoice has all the information on it to process the payment. Don’t give your customer any excuse to delay the payment. Again, a quick phone call from the supplier is all it takes to get the oversights rectified and your invoice back to the top of the queue.
Going forward, try to get payments up front where you can. It’s not unusual these days to get paid for something before you’ve started work.
And choose your clients carefully! A client who gets a bargain deal from you but pays quickly could be healthier for your cash flow than one who is more lucrative but delays your payment, or ends up not paying at all.
For some more top tips – check out Seven Tips for Speedy Invoice Payments
2 – Pause spending
It’s not ideal but putting a moratorium on spending could be necessary. Just for a while, make all department heads go through a senior manager for any spending, including on essential inventory stock. You’ll soon see where the money goes, and it’s an indicator to staff that a profligate approach to purchasing is not acceptable.
Going forward, you should set a policy for what purchases need the approval of a line manager and which don’t, but do get into the habit of checking all purchasing streams regularly because purchasing inefficiencies can creep in, even when buying essential materials and stock.
Have a read of this article with lots of good advice on
about cutting costs in business, either temporarily or otherwise
3 – Speed up your own payments
Have a look at the invoices you have yet to pay and see if there’s a way of paying less. Some suppliers will offer an early payment discount if you pay quicker. Yes, this means that the money is in your account for less time, but it will mean cheaper bills going forward.
If it’s your own admin systems that are slowing down your payment processes rather than your reluctance to pay promptly, then a re-haul of your purchase ledger department could allow you to take advantage of early payment discounts. Check all your invoices right now to see if you can save money by paying some of them off sooner rather than later.
Train your purchase ledger staff to look out for these incentives and get them flagged up sooner. A culture of good financial habits throughout your company will have a positive impact on your bottom line.
Don’t believe me that paying suppliers faster is good for your business?
Have a read of this – Why you should pay your invoices on time.
So if you’re finding your cash flow is a little less fluid than it should be, start by implementing our three top tips and see how you get on.
To talk to us about reducing your business costs, give us a call on 0113 316 7777 or email us on martin@marpat.co.uk
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