Top ten tips for boosting cash flow

Lloyds TSB Commercial Finance has strategies to help you manage and grow your businesses in an economic downturn.

Since cash is the lifeblood of any business, it’s vital for companies to ensure a steady flow of capital.

Strong working capital ensures a firm can perform its day to day operations and provide access to funding for new growth.

Not all of these tips will work for every company, but help you to identify your specific needs and maximise your working capital.

1. Check your terms and conditions. It is important for companies to establish a clear set of terms and conditions to help limit its liabilities, protect from late or non-payment and provide security. Customers will want to know where they stand from the start so a business should be upfront with its ‘Ts and Cs’.
2. Minimise what you take out of your business. Every pound taken from a business for personal use reduces the amount of cash flow available for the company to grow.
3. Try to spread risk. Businesses should, where possible, avoid becoming too dependent upon a small number of customers and see if they can negotiate part payment in advance for big jobs. If a company is concerned about a particular contract, they should consider taking out insurance for all trade with that customer or against individual invoices.
4. Establish a close working relationship with your funder. The earlier a bank is informed about concerns or an issue, the more likely it is they will be able to help a firm manage through any difficulties. Having a close relationship with a bank also means a business can pick its relationship manager’s brains about other sources of help and contacts, be it specialists divisions within the bank or other professionals in the local community.
5. Consider asset based lending (ABL) packages and debtor insurance. ABL, which includes factoring or invoice discounting, provides rapid access to working capital by advancing cash tied up in existing assets and quickly injecting funds into a business. Since it only takes one bad debt to cause a cash flow crisis, many companies also take out debtor insurance policies alongside their ABL facility to protect against insolvency.
6. Take advantage of the Enterprise Finance Guarantee (EFG) Scheme. The government’s EFG scheme replaces the Small Firms Loan Guarantee and supports up to £1.3 billion of new lending by banks to viable SMEs with working capital or investment needs.
7. Prepare monthly cash statements. Cash flow is not the same as profits - a business can be profitable but have a negative cash flow. Preparing monthly cash statements helps a company to ensure that it doesn’t get caught unexpectedly without enough cash to handle its day-to-day operations.
8. Keep a close eye on what you are owed. No matter how many sales a business makes, it won’t be successful unless it monitors and collects what is owed. If the amount that a business is owed by its customers is growing faster than its sales, this could indicate a credit control issue.
9. Ask for cash in advance or on delivery. Where there are doubts about being paid, a business should adjust its balance sheet accordingly to ensure it maintains an accurate picture of cash flow. It is advisable for a company to set its terms to be payment in advance or in full upon completion.
10. Don’t be afraid to chase debtors. All companies should have a collection process in place and be diligent in chasing up what they are owed. The majority of customers will respect a business manager if they approach them politely and professionally to get what they are owed.

June 2009