>Most Company’s payment terms are 30 days from date of invoice, or payment month end following receipt of invoice. This year Christmas Day was on a Friday, and most companies finished sending invoices Wednesday 22nd December and returned on the 4th January, expecting to send the first invoices on the 8th January. We then had the snow! which impacted supply of raw materials and hence production slipped, and hence many companies did not send out invoices until the 15th January, 25 days of not sending any invoices, which can have a serious impact on cash flow, unless the company has a healthy bank balance. During this time fixed costs and salaries were paid, so cash was still going out.
So now, mid February to end of March companies suffer cash flow pressure or even crisis! What can you do to ride out this storm?
There are many actions which can be taken, but my three tips are as follows:
1. Examine your stock levels, do you need to purchase raw materials now, can you delay taking products or raw materials, place the orders, but be smart when the raw materials will be delivered and hence when you will receive the invoice.
2. If your payment terms are 30 days, 45 days or month end following, make sure plenty of time is spent performing credit control. Be polite, firm and persistent. Many companies will have cash flow issues, and most companies are in some form of supply chain, so if a company up the chain is suffering cash flow issues, this can obviously impact yourself. By you chasing your debts, there will be wave affects up and down the chain, make sure you are a high priority to be paid.
3. Create a simple cash flow forecast. Make it simple, take your bank balance as of today, and predict the cash going out, you will know this as this will be committed spend, and you know the amount of cash coming in, as your credit chasing will give you this information. The forecast will give the company a concrete plan to move forward.
I work with eight colleagues (SGBA), and we help small companies through cash flow crisis, in Surrey, Sussex, Kent, Hampshire and Dorset who want to develop and grow their business.