Efficiency linked to cash flow

Feb 16 2010 by Neil Warwick, The Journal

THIS week focuses on how businesses with cash flow difficulties can best manage themselves to increase cash flow and efficiency.

One of the crucial factors in successfully running a business is to manage cash effectively. Increasing efficiency in various areas of your business can help your cash flow and as a result, make management of your business more straightforward.

Below are some areas where increased efficiency could help cash management:

Credit Control

Efficient credit control is key. Your accounts department will no doubt be being pressed for payment by creditors so you should ensure that pressure is kept up at the other end.

This can be especially important if you have an invoice discounting facility as you may not be able to borrow against any invoices that are over three months old.

Review of stock levels

A review of stock levels can reveal opportunities to save costs and may also identify alternatives to some of the stock you are carrying that may be cheaper but of equal quality.

Consideration should be given to where you source materials – just as customers are looking for you to be competitive, so should you be looking to suppliers for the same.

Managing payments

Consider managing payments to your creditors in the event that cash is short. In doing this you will need to balance the risks of non-payment, for instance whether that supplier will stop supplying you and the ramifications of this.

Beware of not paying Crown creditors promptly. If you have built up significant debts to the Crown, HMRC are still considering entering into ‘time to pay’ agreements which will allow payments to them to be spread over a certain period.

Price rises

Whilst it may not seem the right time to attempt to impose a price increases it may be sensible to do so. Many businesses have seen their costs increase and a failure to increase product prices accordingly can lead to pressure on margins.

Customers are often more recep- tive to price rises than would be expected.

:: For more information contact Neil Warwick, partner and head of the firm’s specialist SME service, Kudos, on 0191 279 9375