Cashflow Management

Manage income and expenditure

Effective cashflow management is as critical to business survival as providing services or products. Key methods to help reduce the time gap between expenditure and receipt of income include:

Customer management

• Define a credit policy that clearly sets out your standard payment terms.
• Issue invoices promptly and regularly chase outstanding payments. Use an aged debtor list to keep track of invoices that are overdue and monitor your performance in getting paid. See the Business Link guide on how to manage and recover debt.
• Consider exercising your right to charge penalty interest for late payment. Download the guide to late payment legislation from the DTI website (PDF).
• You can also calculate penalty interest at the Better Payment Practice website.
• Consider offering discounts for prompt payment.
• Negotiate deposits or staged payments for large contracts. It's in your customers' interests that you don't go out of business trying to meet their demands.
• Consider using a third party to buy your invoices in return for a percentage of the total. See debt factoring.

Supplier management

Ask for extended credit terms. Incentives such as large or regular orders may help, but make sure you have a market to sell onto. Consider reducing stock levels and using just-in-time systems - see the page on just-in-time production in Business Link's guide on manufacturing innovation. You can also see their guide on how to manage your suppliers.

Taxation

Buy major items at the end rather than the start of a VAT period. This can greatly improve your cashflow - and may help plug a temporary cashflow gap.

Asset management

Consider leasing fixed assets (equipment), or buying them on hire purchase. Buying outright can result in a huge drain on cash in the first year of business.

Read more tips on getting customers' cash faster at the Better Payment Practice website.