Every business needs cash flow, not only to survive but to thrive. Cashflow is the one thing that can keep your business moving forward or stop it dead in its tracks.

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Do you have a budget forecast/cashflow forecast?

Forecasting allows you to understand your peaks and troughs and take control of your cash flow. Any business owner needs to understand what factors could affect their cash flow.

Your cash flow can suffer greatly when a customer pays late. This lack of cash flow can impact on other areas of your business and dramatically slow your trading down.

When you forecast your cash flow, you’ll always have a better idea of what you should have in the bank. Knowing when every sale and purchase will impact your bank account is useful practice.  It will help you plot details of exactly what should happen in 30, 60 or 90 days’ time.  This can be done simply, and can allow you to prepare accordingly.  If you forecast, negative periods of cash flow can be easily identified and you can take action, such as, speaking to the bank about an overdraft or factoring.

Over-trading is one of the biggest causes of businesses failing.  What would you do in the case of a large contract? Large contracts could come with a very attractive margin but require lots of extra resources such as additional goods to be purchased, larger wage bills to fulfil the sale.  Payment terms for the additional goods/wages remain the same for you, however, a new sale could require longer periods of credit.

How do you bridge the gap to fund the contract until they pay? Forecasting can assist you to find ways to do this.  Lenders will always be more favourable if a business can show regular, accurate information.

Understanding your client

Knowing your client and building the right relationship with them is key. But what do you need to know about your client to protect your cash flow?  What are your payment terms?  What are their payment terms?  Will they work easily together?

Do you set up credit limits for your clients? How much should you allow? How much can you afford to allow?  Understanding your cash flow forecast and knowing your client will make this clearer.

Carrying out credit checks and clearly communicating your payment terms are simple steps that can improve your cash flow forecasting and ensure you are paid on time. Do your customers have the capacity, information and motivation to pay you on time?  It can be tempting to take any sale that comes along, but it doesn’t stand for much if you never get paid.  A little work at the start of the sale could save a lot of time and resource.

Bad debt process

Letting bad debts accrue can be harmful and in some cases fatal to your business. Businesses should have a process in place to detect potential bad debtors and ensure steps are there to enable prompt action in order to prevent them becoming a write off.

What is your procedure for managing debt recovery? Record everything – if there are steps in place to follow up, anyone within the business can then action the debt recovery process, not just you!

When and how should you put a client ‘on stop’? Would you know what to do if a bad debt had to be referred to the small claims court? Businesses need a clear understanding of what their bad debt process is to ensure this is handled effectively.

So, how are you going to avoid negative cash flow or having to write-off bad debt? How are you going to improve your cash flow?  Do you need help with budget forecasting / cash flow forecasting?  Should you consider outsourcing your bookkeeping?  Protect YOUR Cash flow now!


Please join us at our FREE ‘Protecting YOU and YOUR BUSINESS’ event on 8 November 2016 where we shall be giving advice on protecting your cash flow and other topics designed to help protect you and your business.


If you are looking for an accountant to assist you with your business, please get in touch.  We would be pleased to help you.  Read recent Case Studies to find out how PKB Accountants have helped other businesses like yours.

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