How Daniel improved his cashflow…

…and stopped funding his clients’ businesses!

‘Daniel’ was a bakery engineer.

He had a thriving business – in all but one respect.

He wasn’t great at invoicing for his work, so it took his clients months to pay him.

When our team first met him, they were aghast at what this meant…

Daniel had no problem bringing on new clients since his work was so highly specialised. He would go into their bakeries to repair broken equipment, order the spare parts and pay for them himself. It was sometimes six months until he recouped that money, let alone got paid for his time and expertise.

He was effectively funding other people’s businesses. That was his model!

Daniel was constantly chasing overdue payments and chronically short of cash. You can imagine the financial stress he was under.

It’s a classic cashflow problem – and you don’t have to be bad at invoicing for this to happen to you too.

Clients might be too slow to pay for many reasons: for example, your terms and conditions give them too much leeway, or your invoices are simply not a priority for them.

Either way, like Daniel, you’ll end up short of money even if you’re profitable on paper and you have lots of clients.

So how can cash problems like this be resolved?

As I’ve been explaining in my last emails, the key is to understand how money flows through your business: When it comes in, when it comes out, how long it takes to recoup any money you spend – and where you’re left with gaps where money is tight.

In other words, you need to understand your cashflow.

Once you understand these patterns, you can take actions to improve your cash position, either getting more money into your business, or getting it into your business faster.

Typical actions might include working on your credit control, tightening up your procedures to get clients to pay you in good time.

You might also consider taking longer to pay your own suppliers, so that money doesn’t leave your own accounts quite so quickly. (Of course, we don’t recommend delaying payment unnecessarily, but many businesses pay invoices very soon after they receive them, while the terms and conditions may allow you more leeway.)

Or you might look at how you manage stock. When do you buy it? How long does it sit in your office or warehouse, unused – effectively tying up your money?

That’s one of the first steps we took to help Daniel.

We helped him institute a system whereby his clients paid for all their spare parts upfront, so that this expense no longer came out of his own pocket.

That way, even if they didn’t pay him for his work immediately, he didn’t lose money on the parts.

Eventually they moved to a system where he would not commence work without a £500 deposit, and would only work up to that value until the rest of the bill was paid.

He wasn’t paid any more than before, but because he was paid much quicker (and even in advance), his cash position improved immeasurably. Without clients in constant arrears, his stress dissipated as well.

Of course, there are other steps you can take to improve your cashflow and shorten your cashflow cycle. It all depends on the precise challenge you’re facing.

Here at Insight Associates, we routinely help our clients understand their cashflow situation and then improve it.

It’s a key part of our outsourced financial management service, because cashflow is the lifeblood of any successful business. Just like a machine that needs fuel constantly flowing through its pipes, your business needs money constantly flowing in order to stay afloat, and stay healthy.

The truth is that almost every business can tighten up its cash cycle, even if you don’t face serious cashflow issues. You will never regret receiving money faster and having it in your account for longer – and most businesses are not as efficient at this as they may imagine.

If that’s an area where you’d like help, please get in touch with us today. Simply email us at info@insightassociates.co.uk or call us on 01279 647 447 to set up a no-obligation consultation.

Warmly,

Garry

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In this blog archive our Managing Director, Garry Mumford simplifies all things financial and shares with us a lifetime of practical financial business advice.

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