On the other hand, negative cash flow means the overall balance of your business has decreased. This is usually caused by a slow business period or clients failing to pay on time. Whilst negative cash flow is never ideal, it also isn’t a direct indication of failure. A small business can still produce high levels of profit during periods of negative cash flow, despite appearing to be losing income.
However, monitoring your cash flow can be important for several reasons and small businesses need to be aware of its influence. To ensure your cash flow remains healthy, check out a few of our top accounting tips below.
It would make sense for clients to pay you on the same day each month, especially if they are a repeat customer. Unfortunately, this is often not the way things play out and you can soon find yourself in trouble if you rely on regular payment. Whilst you might not be able to pin down the exact habits of these clients, their ad-hoc nature is an indication that you should remain wary.
Plan your cash flow around clients who pay promptly and rarely need reminding when an invoice is due. This will ensure you are definitely covered for any stock you purchase or loans you take out, as well as providing you with an extra boost when your reluctant client finally pays up. You should also stipulate exactly when payment is expected and provide a maximum window of 28 days for any outstanding invoices to be paid.
Whilst late payments can’t always be avoided, late invoicing definitely can be. Don’t make things harder for yourself by forgetting to bill your clients on time. It may not be a problem in the short term if clients are able to adjust to the change, but you don’t want it to become a regular issue.
Routine bookkeeping can help you keep on top of all your invoices and ensures you send each one out on time. By recording a regular log of all the jobs you’ve undertaken or items you’ve sold, you can keep track of each one and receive payment for it at the appropriate time. Good bookkeeping is an easy way to increase your cash flow and only takes a few moments of your working day.
If you are receiving regular and correct payments from clients, but still failing to boost your cash flow, then you may need to look at the way you handle your own expenditure. Whilst there might not always be an opportunity to cut your costs, careful management of payments can lead to a healthier overall balance for a longer period of time.
For example, all small businesses will have to pay utility bills at some point and the money for these usually leaves your account at a very specific time each month. However, wholesalers, suppliers and vendors are often much more flexible. This means you can make repayments for stocks at a time that better suits your cash flow. As long as you don’t abuse these relationships by refusing to pay for months at a time, you can begin to hold onto your cash for longer.
Above all, any delays in the payment process can lead to a decrease in cash flow. One of the simplest ways to avoid this situation is to make payment as accessible as possible to your clients. Nowadays, there is no reason not to use online facilities for this task. Invoices can be both sent and paid for on the net, with a careful record kept of each for bookkeeping purposes.
The easier it is for clients to work with you, the higher the chances of them returning to your small business in the future. So, not only does online invoicing and bookkeeping makes payments quicker and more efficient, it can also help bolster your cash flow by bringing in repeat custom.