Cash flow is the lifeblood of any business, and without money coming in, you might not be able to pay your emplyees, suppliers or invest in the growth of your business.
A study shows that one in every four SMEs in the UK are struggling today to cover their business costs because of late payments and the knock on effect can be personally and professionally destructive, leaving almost 50,000 businesses with no choice but to close down due to cash flow problems.
Read on for the eight best strategies that can help you improve and protect your cash flow in 2022!
Cut unnecessary spending
The best way to ensure that your company has enough money is to cut unnecessary spending. This could be done by hiring fewer people or using cheaper materials in the manufacturing process, for example.
If you’re not sure where to start cutting back, try looking at all your subscriptions and expenses and see if there are any who aren’t adding real value to the organization.
There are always small expenses that can be cut and those small expenses add up quickly. If you’re having trouble coming up with ideas for cutting back, try using an app like Spendee or Mint to help you track your spending and see where there are opportunities to cut out unnecessary costs.
Streamline your processes
Inefficient processes cost you money. They can also lead to mistakes and lost time. So, it’s important to streamline your processes as much as possible.
This can be done by using the right tools for the job, automating where you can, and training your team members on how to work efficiently together.
For instance, using the right software and tools is a foundation part of good credit control, and the automation functions found in Chaser can get you paid up to 16-days sooner and save you more than 15 hours a week chasing unpaid invoices.
Again, if you’re not sure where to start, take a look at your worst-performing processes and see if there is room for improvement.
Have an effective credit control policy in place
An effective credit control policy is the basis on which any cash flow forecasting is built and it should be the cornerstone of every business.
Your credit control policy should set out the rules for extending credit to customers, how late payments will be penalised and what measures you will take to recover overdue invoices.
It’s also important to have a system in place for monitoring customer credit limits and chasing up any overdue invoices.
If you're struggling with putting together your own credit control policy, don't worry, Chaser’s expert team have put together a credit control policy template you can use to get started.
Remember, when setting out your payment terms, it’s important to be clear and concise so there’s no confusion over when payments are due. You should also make sure that the terms you offer are fair and reasonable – otherwise, you may find yourself struggling to recover late payments.
Credit check your potential/new customers
Credit checking potential customers is a key part of good credit control, and is essentially your first line of defence when it comes to bad creditors as it allows you to assess any potential risk before doing business with them.
Credit checking is a perfectly normal step in onboarding a new customer and an excellent way to protect yourself and your business from accruing bad debt.
It's also worth remembering that credit checking should be an ongoing process - you should continue to monitor the creditworthiness of your customers, and act if their credit score changes for the worse.
"Credit checking potential customers is a key part of good credit control, and is essentially your first line of defence when it comes to bad creditors as it allows you to assess any potential risk before doing business with them.
Send invoices right away and follow up until payment has been made
The quicker you send a correct and concise invoice with all the right payment details on it, the faster you are going to get paid.
Send invoices right away and follow up until payment has been made.
If that means calling the customer or emailing them multiple times, then that's what you'll need to do. Similarly, you should also ensure that all your invoices have all the required details your customer needs to make a payment, but also ensure that they are not cluttered with useless information.
If it takes more than one page to explain the services or products provided then there's too much information on the invoice - use a separate sheet of paper for additional details.
It is important not to delay in sending an invoice after service has been completed.
You can also prime your customers for payment with a “before due” email a few days before the invoice comes due. This will remind your customer of your invoice as well as ensure they have everything they need in order to make payment.
If you’re struggling to find time to send these payment reminders, there are a number of softwares you can use to automate and streamline your processes, such as Chaser. With Chaser, you can send automated, personalised payment reminders and on average, Chaser gets paid 16 days sooner on average and save up to 15+ hours per week on their credit control.
Stricter and shorter payment terms
While we've already emphasised that it's important that your payment terms are reasonable, that doesn't mean they have to be lengthy. Try to keep your payment terms as tight as possible without being too restrictive.
At the same time, you can also encourage your customer to make a payment by writing late payment penalties into your payment terms, these can include a late payment fee or interest levied on the amount payable.
The standard payment terms in the UK are 30 days after invoicing, but you may want to consider shortening this to 14 or 21 days. This will encourage customers to pay sooner and help reduce the amount of money you're owed in outstanding invoices.
Make it as easy as possible for your customers to pay you
If your customer doesn't have the right payment details, then you won't get paid, it's that simple. Therefore, ensure that your payment details can be easily located on the invoice. This is important as a lot of companies use software to manage and process their payables and you want to make it as easy as possible for this software to detect your details and make payment.
Additionally, ensure that you have a range of payment options available to your customers.
From clients to suppliers, most businesses have a preferred way to pay their invoices. If you can make the payment as easy as possible for your clients, and facilitate different payment methods you are more likely to receive the expected funds on time and avoid further delays. In addition to accepting bank transfers, we recommend that you team up with a payment portal provider, such as us here in Chaser, that allows your customers to pay their invoices electronically, either via credit card, Stripe or PayPal to mention some, in a safe and secure manner.
Offer your customers flexible payment plans
Taking a more flexible approach to getting paid can often yield results that simply making demands would not. If you give most customers a choice, they would generally prefer not to be late on their bills, but sometimes delays are caused by circumstances outside of their control.
In these cases offering a more flexible payment plan can be the difference between keeping and losing a customer and it can massively increase your chances of getting paid.
With Chaser’s new payment plan feature, users can give their customers the chance to break up their invoices into smaller, easier to manage instalments and integrate them seamlessly with the automated reminders
By taking these small steps and offering flexible payment options, you can help ensure that your customers have a positive experience with your business while also increasing the likelihood that you'll recover the money you're owed.
Increase your cash flow for 2022
Cash flow is king for small businesses. It's important to manage your cash flow so you don't run into any financial problems.
By incorporating Chaser's suite of market-leading automation features and payment options into your credit control processes, you can dramatically improve your cash flow in 2022.
Chaser's automation features will help you get paid faster, save time and avoid bad debt. With Chaser, you'll be able to focus and spend your time running your business and increasing your profits. So why wait?