How to keep a healthy company cashflow

Maintaining a positive cash flow within your company can be a challenge – it is something most financial leaders are managing regularly, always looking for ways to help ensure consistency.

A negative cash flow situation can be caused by a variety of factors, particularly in the current economic environment. Overdue payments, higher overheads and fewer clients can all affect cash flow.

Forecasting

Planning and budgeting are the best ways to ensure your cash flow stays healthy. Of course, unforeseen circumstances occur, but budgets can be updated to keep control.

Make sure cash flow is monitored and tightly controlled, as this will provide a better outcome.

Keep accounts up to date, including bank reconciliations and prepare monthly or quarterly management accounts to ensure you always have meaningful up-to-date figures to work with.

Payment terms

Many companies often have generous payment terms, but there is nothing to stop these from being amended. Your business could encourage faster payment terms if longer ones are beginning to cause a problem. Online invoicing also helps with cash flow as it encourages faster online settlement and issues automated reminders.

Adjust accounts payable

If your company needs more time to settle its supplier accounts, you could request extended payment terms. This isn’t ideal for the other suppliers’ cash flow, of course, but generally, if your cash flow is under extreme pressure, they would rather be paid slower than see you go out of business. It’s worth making contact to try to establish more flexible payment terms.

Conserve company cash

One of the biggest expenditures for a business is its staff bill. Regarding salaries and pay incentives, consider non-cash benefits for employees. Offering additional holiday entitlement and flexible working arrangements doesn’t add to the wage bill but might be highly valued by employees and will therefore help reduce costs.

Increase expenditure controls 

It’s perfectly reasonable and, in fact, necessary to review expenditure controls to maintain cash flow.

Consider increasing expenditure control procedures and reducing limits. Ensure there are clear budgets set while maintaining some flexibility. Often, just the introduction of a process will reduce unnecessary expenditure.

Build up reserves

It might sound like a cliché, but there is a lot of value in ‘fixing the roof whilst the sun is shining’ and ensuring that you do not overspend when cash is flowing well. Try to retain cash within the business to ensure there is a rainy-day fund, because there will always be hurdles to overcome in the future. Remember, a regular customer could go out of business, another pandemic could occur, or an inflation hike might happen.

Retaining funds can limit the risks to your business overall. If you do have a rainy-day fund, make sure you are receiving the best rate of interest available.

If you need help managing cashflow in your business, please contact a member of the Beatons Group by calling 01473 659777 or by visiting the Beatons website.