Friday, 15 August 2008

Top Tips On Improving Cash Flow With Jigsaw Business Services

After 20 years working with businesses to help them improve their cashflow, Julie Owen, of Jigsaw Business Services gives us some of her top tips on how we might be able to achieve some of these results within our own businesses.

1) Contracts, Letter of Engagement or Head of Terms

It may sound obvious but, whether you’re selling a service or product, do you have a document which your client has signed to say they would like to enter into an agreement with you? The detail of the item being purchased along with the cost and timescales should also be included in the document. Should your client dispute the level of service or goods provided, you can refer to this contract, letter of engagement or Head of Terms to ensure you have delivered what was agreed at the price agreed. This way your invoices are less likely to be disputed.

2) Consider Whether You Have The Right Business Processes in Place

How will you deliver the service or product? What processes does your business need to have in place to ensure the smooth delivery? Do you have the necessary project management quality systems in place? How many times have you ordered a product and something has arrived broken or missing? Having the right business processes in place can and will save companies money in the long term. Business processes should be tailored to your business and that doesn’t mean lots of endless form filling. Remember, only happy clients will signoff the service or product. Unhappy clients will leave your invoice to gather dust on their desks!Where a business is providing a service, whether a one off service or one which will take several months to deliver, think about when you will invoice the client. Could you ask for staged payments rather than wait until you’ve delivered the service before invoicing?

3) Invoicing

Once you’ve agreed the invoicing schedule for each client, put these into one document to make it easy to refer to and which will clearly state all your client invoices to be issued each month making it easy to know who to invoice when.

Don’t leave it until the end of the month before drafting and issuing your invoices. Invoice your clients as soon as you’ve delivered the product/service or at the agreed stages during the project.

Think about who drafts and issues the invoices, are they the right person to do this? What business processes do you have in place to ensure your invoices are issued efficiently? Do they include all the expenses i.e. travel, postage etc, you have incurred? These costs really can mount up over 12 months and, by not passing on these costs to your clients, will result in an erosion of your profit!Explore whether you can issue invoices earlier in the month. If you only invoice at the end of the month and your terms are 30 days, it is likely you will not receive payment until the end of the following month, i.e. when you have to pay salaries and VAT. So by issuing as many invoices as you can during the month, it hopefully means you will have monies coming in during the month hence reducing your business risk and for the need of overdrafts or loans.

4) Cash Control

Who does this task in your business? If you are a Managing Director or a Director, is this a good use of your time and skills? Are you effective enough i.e. are you to close to the situation, do you think you might upset your clients, so don’t talk to them about overdue monies owing? Are your clients settling invoices within the agreed business terms? If not, then why not? It is very important to think about this area and to be honest.

If you have a member of staff performing this role, review how effective they are. Have they received proper training? Do they actually chase clients for payment? I have come across many companies where staff don’t like chasing for monies owed and have even admitted they actually don’t do it, keeping busy on other tasks in order to ‘get out’ of having to pick up the phone.

In this current climate, clients are unlikely to settle invoices if they are not being actively chased. This will become more apparent over the coming months, and it’s very important for businesses to keep on top of debtors.

If a client consistently takes longer to settle invoices i.e. not as agreed in your business terms, then ask yourself the question: Do I want to continue to do business with them? The answer may be yes, but you are then making the conscious decision. By ensuring you have the right business processes and people in place performing the right tasks, it reduces the need for you to make this decision. A business can only afford to have 1 or 2 clients who may take longer to pay than the agreed business terms. If you have more, you need to give this some urgent attention.

5) Cash Flow

Can you project your cash flow at the end of any one week or month? Do you know when monies are due in and when payments need to be made?

By monitoring cash flow based on sales, purchases, direct debits and standing orders, you can easily see if your business is generating enough sales or whether your overheads are too high. Monitoring cashflow will give you an early indication that more sales are needed or a reduction in overheads is required. You can then make an informed decision as you are in control. So many businesses don’t have this system in place and are put in a position of taking large overdrafts or loans which only further impacts on the business.

Reading the above tips may well lead us to ask ourselves the all important question; "Am I in control of my business?" If the answer is; "Yes" then you probably have a healthy business. If not, then what are you going to do about it?

For a no-obligation informal conversation about any of the issues raised above, contact Julie, on 07973 715738, or visit

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