1. Ask customers to pay early
We all know how hard it can be sometimes to get customers to pay on time let alone early but a friendly email or telephone call to ask if they can is all it takes. If your relationship is a good one then chances are they will say yes. Some clients pay late as standard practice so it’s worth asking the question. Maybe offer them incentives such as a small discount to pay you early.
2. Extend your overdraft facility
If you have an overdraft a good option to free up cash is to extend your overdraft. Often this can be done pretty much instantly too by your bank or building society. What’s more it doesn’t take long to ask the question and you get an instant answer too. An easy option to free up some cash flow.
3. Ask for payment extensions from suppliers
If you use the same suppliers and have a good working relationship then it could be an idea to ask for a payment extension to help a cash shortfall. A phone call is a good way to do this as it’s more personal and friendly then an email and your suppliers will appreciate this.
4. Chase overdue invoices quicker
If you often have invoices overdue then you might leave it a few days or even weeks before chasing these up for payment. Maybe you could send out a polite reminder email a few days before the invoice is due, then if no payment is made another email the day after it was due to remind them to pay. Maybe your customers have genuinely just forgot so a polite reminder should not harm your working relationships.
5. Request full or part payment up front
If your service requires materials and your business purchasing something before providing the service then always ask for part payment up front or a deposit. You should always do the same also if you are working with a customer who has often paid late before. Besides helping with cash flow you get peace of mind too and the cash to help complete the service ordered.
6. Write off unpaid debt
If you have long term outstanding unpaid debts from a customer that are proving too much hassle or near impossible to collect then you could write these off as bad debt and claim bad debt relief. This allows you to claim VAT back from the debt.
7. Secure a short term loan
Short terms loans can be ideal to plug a cash flow gap. Rather then enter a long term loan deal which might be too much for what you need, a short term loan over a matter of months could provide a quick and easy way to raise some cash. Just always make sure you are aware of the APR and interest rates.
8. Charge late payment fees or interest
An unpaid invoice can put stress on a business so your customers should really pay on time out of respect for you and your business. Maybe have a system in place where any late payers are charged fees or interest to entice them to pay on time. This might damage your working relationship though so always make sure you use this tactic carefully. The Late Payment of Commercial Debts (Interest) Act means businesses can charge amounts up to £100, though this depends on the debt size, in addition to the daily interest of 8% + the Bank of England base rate, to help cover the cost of its collection.
9. Shorten your credit period
If your payment terms are 90 days then reduce this to 60 days, this is a sure fire way to help with cash flow. Even consider a 30 day payment term. Just make sure you send out a polite reminder a few days before payment is due.
10. Haggle with suppliers
If you don’t ask you don’t get so you could reduce your cash outlay by re-negotiating costs of your products or services from your own suppliers. You could also request a delayed payment plan with your suppliers to help you get through a tight cash flow period.
11. Keep a fool proof record of invoices due and outgoings
If you don’t know what you have coming in or out financially then how can you ensure your cash flow is as efficient as it can be. Always make sure you keep a fool proof and up to date record of all invoices sent and paid and all due. Make sure all get alerts when an invoice is overdue and even a few days before so you can send a gentle reminder out.
12. Lease instead of buying
If you need new equipment to cover a new order or an increase in demand then consider leasing until you can buy. Perhaps its safer leasing also just in case your increase in demand is only temporary so you don’t buy equipment you won’t need a few weeks later.
13. Consider credit insurance
You can get insurance that covers your business in the event of a cash shortfall due to late payments or non-payments.
14. Review your invoicing and payment procedures
This should be completed once a year at least. Go through your payment processes and see where you can streamline your businesses financial activity. A financial health check can help identify areas where you can make improvements.
15. Reduce your business costs
One way to reduce cash flow issues is to reduce your outgoings. Just like you should have an annual financial health check you should also have an annual business health check. Lowering your running costs means you can stay stable financially with lower cash funds in the bank. Review where savings can be made in your business, from staff to suppliers and even materials and equipment. Can you move to smaller business premises to save money? Maybe reduce your fleet of cars or vans etc. Look into every option to reduce running costs.