Many businesses experience cash flow problems because they overlook some important factors when getting into a deal. For the best results, you need custom payment periods and you must vet your prospects for creditworthiness.
Cashflow is the lifeblood of your business, which is why you should make every effort to keep money flowing into your coffers. Start-up companies often forget this primary rule of business and they suffer for it, warns a credible private bailiff service provider. Recent reports reveal that small businesses in the UK owed a staggering £255 billion in outstanding payments.
The sums owed varies from £25,000 to over a million pounds, which present the affected firms with severe cash flow problems. Taking precautionary measures right from the onset is key to avoiding the risk of joining the growing number of cash-strapped businesses in the country.
Establish a great invoice system
Growing a small business is hard enough without the added stress of chasing after client to collect money on overdue accounts. If you are constantly having to follow up with customers for payment, you are wasting valuable time and effort. You need to establish an invoice duration that works for your business and stick with it.
For instance, it is tempting to issue 60-days invoice to win a business deal but that wouldn’t work if it leaves you short on cash. That said, you need to customise the payment periods to suit your cash flow needs. Otherwise, you might have a hard time meeting your monthly obligations.
Vet your prospects
Before extending a credit facility to a prospective client, check their ability to pay for the goods and services. Failing to do so can leave you in a cat and mouse game at your expense. Luckily, the evolving technology makes it easy to establish the creditworthiness of your prospects.
A quick look at their credit report can indicate the financial health of a sole proprietorship while bank references can offer insights into the risk a larger company poses. You can also ask the customer to present references for some of their suppliers—just be sure to ask for more than one.
Regular and consistent cash flow is the lifeblood that drives a successful business. Therefore, you need to take precautionary measures to avoid being cash-strapped.