Handling monthly cashflow problems

YoungBusinessman

Say you have just started a new business, couple months down the line you have managed to buy all the gear. Few monies due dont come in, bills coming in, most can be covered but you are not 100% sure and no gaurentee income will come in time, what do you do about it??

paddyrg

Offer 5% discount for advance payment? It gets no better if you're a big company trading for years, poor cashflow can kill any business, even if you're showing a paper profit

phill99

Years ago a guy said to me that you can beat anything in business: you can beat the tax man, you can beat the unions but you will never beat cash flow. How true he was.

I also learnt that there are three aspects of a successful business: getting the work, doing the work and getting paid for the work. Of the three, the last one is most critical.

You need to keep on top of credit control.

Set your payment terms out to your customers an stick to them. As paddyrg says, give discount for payment on a proforma invoice o for payment within 7 days. Don't be inbred off by people sob stories. If dealing with a company, get to know the name of the payments clerk. And don't be afraid to put customers into court. They are customers, not friends.

telboyo

in Germany it is standard practice for companies to apply "sconto" (discount) to an invoice. If a company is paying promptly they automatically deduct a small percentage freom the amount they send to pay the bill.

YoungBusinessman

Thanks it's just to bear in mind for when I start up towards end of year. Starting officially next month but only outside full time job until hopefully picks up enough to go solo at end of year. Obviously once started will be trying to build up cash reserves.

getmore4less

You have to have a cash flow buffer and provisions for debt right off.

Credit check and put a limit on credit for regular customer.

Watch your forward commitments, you need startup capital to cover these

trailingspouse

You don't have to offer credit - you can insist on 'payment on receipt of invoice'. But if they're not going to pay on time, they're not going to pay on time, regardless of what you put on your invoice! Be prompt when chasing bad payers - we allow 30 days terms, and on day 31 they get one of my 'grade 1' e-mails, saying that I've noticed they haven't paid, and could they pay now please? Exactly one week later, I ring them, have a nice chat, and then they pay.
You are entitled to charge interest on overdue payments - whether you choose to do this depends very much on whether you can afford to lose the business of the bad payers.

YoungBusinessman

Well cash buffer should be over £5,000 by time I take plunge, with my personal expenses being low despite having just taken on a mortgage, this will cover 3 months outgoings from the off, assuming nothing unexpected pops up.

somethingcorporate

YoungBusinessman wrote: »

Well cash buffer should be over £5,000 by time I take plunge, with my personal expenses being low despite having just taken on a mortgage, this will cover 3 months outgoings from the off, assuming nothing unexpected pops up.

An overdraft is always a useful tool if you do get very desperate.

As mentioned above nothing is more important to a business than cashflow.

YoungBusinessman

Might just get a personal overdraft as its more or less because I am confident will always cover bills(low set outgoings, varied lump purchases) it's just if I cannot pay myself a wage a few months in a row for whatever reasons.

Maybe have to hold off on going solo full time an extra few months if I'm able to save 4 figure each month like currently doing so.

somethingcorporate

Yep, it's certainly worth taking a cautious approach and if you end up not dipping into any additional savings you make you can always reinvest for growth.