“Cash is King”, we have all heard this and when running a business it is critical. Here’s the scary bit…
4 out of 5 businesses fail due to poor cashflow, so let’s see what we can do quickly and easily to help you improve yours.
Here are some quick ideas to do just that.
Take a look at your payment terms, on average are they before or after you are expected to pay your suppliers?
If your suppliers expect payment in 14 days and your customers are enjoying 30 days payment terms, then this is out of balance. You have money going out before it comes in.
A review of your payment terms with your suppliers and your customers will help bring the balance back in line.
Early Payment Discount
It might be that you can afford to reduce your profits slightly in favour of improving your cashflow.
Look at offering early payment discounts, some of your customers might appreciate being able to save a few pounds if they pay earlier.
VAT on Bad Debts
If you are VAT registered, you could sometimes be paying out VAT on your Sales before you are being paid by your customers.
What happens if your customer doesn’t pay, are you out of pocket?
After 6 months you can recover the VAT paid over to HMRC for bad debts, so recovering the cash. Here’s the link to their guidance:
VAT Cash Accounting Scheme
This allows you to file your VAT return based upon what you have paid out and what you have been paid, rather than what you have purchased and sold in the period regardless of whether it is settled.
This is only available to companies with a turnover of £1.35m or less.
There are other methods you can look at from your banking facilities, leasing rather than buying outright, improving your financial information so you can forsee your cash requirements and improving your profits. These are all valid and can impact your cashflow significantly.
If you would like any more information on Cashflow Management, please feel free to contact us at [email protected]