Cash Is King And Don’t Ever Forget It

By Michael Byrne FCA, partner with DBASS Chartered Accountants

Ten Steps For Improving Cash-Flow In Your Business

In the last few years, access to credit for companies has all-but dried up. This makes the balancing act of cash-flow management an even more precarious task. The quarterly Credit Watch survey from ISME found that the average payment period for small and medium enterprises is currently 71 days.

40% of companies were waiting over three months for some payments, with 12% waiting over 120 days. Observe the following steps to help keep your cash-flow levels healthy.

1. Prepare Regular Cash-Flow Forecasts
This will give you breathing space and minimise unpleasant surprises. Prepare projections for the coming year and roll these forward each month. This will allow you to look at the next twelve months to assess when cash-flow difficulties may arise. Plan your outgoings accordingly to ensure you can keep your business afloat. Approach suppliers and banks in advance of a cash-flow shortage to work on a solution.

2. Get Your Customers On Direct Debit
Direct-debits can take the hassle out of making a payment. The bank will charge the account holder if sufficient funds aren’t available to make the direct debit. As a result, most people will give direct debits priority and make sure they have money in the account. Getting paid regularly on a specific date will help you prepare more accurate cash-flow forecasts.

Cash Flow Invoice 3. Look At How You Invoice Your Customers

Can the “cash receipts” basis apply? Even if it has not before, it applies if either:

annual turnover of less than €1 million
or
90% of your sales is to unregistered consumers and not businesses

On a cash receipts basis, if you invoice someone, you won’t be obliged to pay the V.A.T. until you receive payment. As falling sales and rising debtor days are more common having to account for VAT on sales invoices issued when payment is received is welcome, particularly as VAT inputs on purchase invoices received can be claimed before payment is made.

4. Take Part-Payment
If a company owes you money but can’t pay the full amount, encourage them to pay what they can. The company can pay the balance at a later date.
5. Accept Payments On Your Website
Incorporate a payments section on your website that accepts credit cards. Make it as easy as possible for people to pay you. Include a link to the payments section on your site with every emailed invoice.

6. Accept Service In Lieu Of Payment
Many businesses are struggling to pay their creditors. If a printer owes you money but can’t pay their bill, reach an agreement on your printing requirements in lieu of payment. This means that you won’t need to spend cash on your printing needs elsewhere.

7. Call People Who Owe You Money

This is never a pleasant task but vital to good cash-flow. Ring slow-paying clients. Remind them of their bill and ask them to keep you in mind. Break the bill into smaller payments and suggest setting up a direct debit.

8. Make A Deal On The Agreed Price
The business that owes you money may have cash-flow problems of their own. Sometimes, the only chance you have of getting paid is to take a heavy discount on the originally agreed price. Being prepared to discount puts you to the top of the list to be paid when a business is struggling. Getting paid something is much better than getting paid nothing.

9. Refer Business To Your Clients
Make an effort to network with your clients and refer them business. This process promotes good-will and should shorten the time you wait to be paid. Ask clients to refer business to you also. More clients should help improve cash-flow.
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10. Assess Your Outgoings
Most businesses have cut the bulk of discretionary expenses. It may be a useful exercise to review any remaining expenses such as client entertainment, bonuses and travel. This could provide a much-needed injection of liquidity into your business.

About The Author – Michael Byrne Michael Byrne DBASS

Michael Byrne FCA is a partner with DBASS Chartered Accountants.
Michael has extensive commercial experience in business and taxation advice. DBASS Chartered Accountants are a medium-sized accountancy firm with offices in Ashbourne, Co. Meath and Sandyford, Dublin 18. If you have a question about Finance Act 2012 and how it affects you, feel free to call DBASS Chartered Accountants on 1850 812 500. DBASS Chartered Accountants can be found here on Twitter, Facebook, Linkedin and their Blog.