Limitations for SME’s when Lacking a Healthy Cashflow
Having a healthy cashflow is an especially beneficial trait, particularly when you are trying to build a successful and financially viable business. Lacking healthy cashflow management limits the progress your business can make. It won’t be sustainable and, consequently, your chances of expansion, whether that be in terms of growth or client base, will not be possible.
While there are a lot of different ways you can ensure that your cashflow is as healthy as possible, the following five tips provide solutions to push you in the right direction and continue your business growth.
Solution1: Renegotiate long-term contracts
Contracts that you have had for a while are likely to be lacking in certain ways. You may find that you have misquoted a long-term customer by a considerable amount, in such a way that your profits are taking a serious hit. Where possible, renegotiate costs with long-term clients to ensure that both parties are getting the best end of the deal.
Solution 2: Monitor your customers’ credit history
Make sure you know your customers. Purchasing status reports from credit agencies is possible. So, before beginning long-term, financially costly relationships with clients, you are entirely within your rights to check that you are entering into a business relationship with someone who has a trustworthy reputation.
Solution 3: Forecast but don’t overestimate
It’s perfectly acceptable to be optimistic about the numberof sales that you’re going to make – but being realistic is also advised. It’s incredibly important to come up with realistic forecasting as a way of tracking future growth of sales and trends. Ensuring that you make predictions that are both realistic and objective will also mean that you don’t overspend in the first years and find yourself spiralling out of financial control.
Solution 4: Ensure that you chase your debtors
Having established debt recovery procedures is essential to maintain good cash flow management. Having a rigorous and consistent approach to late payment will give you the security of knowing exactly what to do if someone fails to pay for your service or product.
Ensure that follow up calls take place after a certain amount of times and invoices are re-sent as reminders a particular amount of times. If all fails, you should revert to a more seriouscourse of action.
Solution 5: Ensure that you have a cushion to fall back on
Unfortunately, business doesn’t always run smoothly so ensuring that you have a financial cushion to fall back on may well be the key to protecting your business. There will, of course, be occasions where invoice payments are delayed so having a cushion of savings there for you will ensure that it doesn’t affect the day to day running of your business and disrupt your healthy cashflow!
A realistic target to aspire to is around two months of operational costs, meaning that iffor whatever reason, you find yourself in a situation where your cashflow is stalled, you still have the absolute bare minimum to keep your business running smoothly.
The GapCap Solution!
In an ideal world having a healthy cashflow means that you do not need short-term solutions. However, sometimes a short-term solution is the best way to get your business back on track if available funds are short. GapCap can offer you peace of mind in three different ways, giving you the short-term relief you may need. With Selective Invoice Finance, Flexible Invoice Discounting and Supplier Finance there is a way for businesses of any type to improve their cashflow and strengthen and grow their customer relations.