Improve Cash Flow in 3 Quick Steps
Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia.
I speak with a lot of accountants, credit managers and company directors who are experiencing cash flow pain. This is mainly due to unpaid accounts that is why they end up talking to me.
Cash flow has almost nothing to do with profit. A business can be profitable and still go bankrupt because of cash flow problems. I cannot help but feel for these people and I always do my best to collect their debts to alleviate their pain. However, I also offer some preventative strategies, so that they will not get into trouble again.
Here are my 3 quick fixes to improve cash flow:
1. Finances and Forecasting
Why this is important? Good bookkeeping and financial forecasting is the first step to good cash flow. I like setting goals and financial goals are the most important in my mind. The two main bookkeeping software packages, MYOB and Xero, both have very good financial forecasting reports that can be generated, based on information already entered into the software.
What you can change: If you can, go over your profit and loss statements each month with your bookkeeper or accountant. Have good forecasting of cash needs and good decisions to stay within your cash capabilities.
The easiest way to do this is to have a budget. Ensure you use that to create a cash forecast and carefully monitor how you are progressing against what you predicted. Even for a tiny business, creating these tools is vital to both manage cash flow well and to help secure finance if it is needed.
Why this is important? Terms help create certainty to an agreement. It will help you provide good customer service, as well as covers all-important matters and not overlook the things that are less obvious.
What you can change: Create and enforce very clear payment rules in your terms and conditions. I recommend 14-day terms. Advise your clients on your invoice and in your contract that you will charge interest, recovery fees and/or legal fees if the account is not paid within your terms. Ask one of our solicitors to re-write your terms to include these conditions by visiting ADC Legal Litigation Lawyers’ website, www.adclegal.com.au.
Do you know exactly who owes you money and when it is due?
Why this is important? Slower debtors means more cash is locked-up so you cannot use it to pay your own bills and staff. This is usually the biggest contributor to bad cash flow. Faster-paying debtors creates faster flow of cash so you can reduce your borrowings or fund growth more easily.
What you can change: From point of contact right through to debt collection you are sending messages about how important your cash flow is. Once your terms are set in place, get a proper accounting system or accounting expert, to look after your accounts. Build a relationship with a Debt Collection Expert, so you can quickly outsource your delinquent accounts as soon as they fall due. Debt Recoveries Australia offer a “one-stop shop” solution for debt recovery and litigation, including free legal letters of demand. See www.debtrecoveries.com.au for more details.
Give me a call if you need any more help or if you are ready to outsource some of your hard to collect debts. You may contact me on Debt Recoveries Australia at 1300 799 511. You may also email me at firstname.lastname@example.org or Skype at debtrecoveries.