Healthy cashflow is a sign of a healthy business. Issues with cashflow can severely damage an organisation’s ability to remain operational. With 2016 almost here, it’s important for businesses to make sure they’re doing everything they can to maintain their cashflow in the coming year.
Mark Hoppe, managing director, Atradius, said, “Steady cashflow is imperative to keep a business going. If cash flow is interrupted, it means that staff can’t be paid, new stock can’t be purchased, and the business may grind to a halt.
“There are a number of things that can cause cashflow problems for businesses. One of the most prevalent is non-payment or late-payment by customers for goods and services. Other factors might include market pressures, such as diminished demand, heightened supply, or a soft economic climate.”
While most of the factors that contribute to cashflow interruptions may be out a company’s hands, there are steps organisations can take to lessen the chances of some influencing factors, and others that can be taken to help mitigate cash flow trouble.
Atradius recommends five key tips to help businesses maintain healthy cashflow in 2016:
1. Keep your eyes open
It might seem simple, but the first step for businesses to maintain healthy cash flow is to make sure they are dealing with companies that have a good credit history, are trustworthy, and can pay invoices on time. If a customer’s credit rating changes for the worse, for example, businesses may want to reassess the terms of trade.
2. Don’t dally with late payment
Without prompt invoice payments, organisations can’t maintain their cash flow, which could send them into a financial tailspin. If a business keeps track of when issued invoices are due to be paid, it will be able to follow up before it becomes a problem. It is important to chase up payment without delay.
3. Issue invoices promptly
If a company takes a while to issue an invoice, its right to demand prompt payment can be diminished. While most invoices will generally be issued promptly, sometimes this vital administrative task can slip down the list of priorities. It is important to not let this happen. Make sure the invoice is issued at the first possible opportunity with a clear pay-by date.
4. Increase credit lines
One way to keep cash flow going is to increase lines of credit with lenders or suppliers. If an organisation’s underlying finances make it safe to do so, this can be a quick and easy method to keep cash flow healthy, even if there is an interruption of cash inflow or outflow. However, if finances don’t support it, extending credit can expose a business to greater potential risks.
5. Protect yourself
Businesses can also protect themselves from a variety of forces that interrupt cash flow with trade agreements, contracts, and trade credit insurance. Not only does trade credit insurance help keep cash going in the event of non-payment, it can provide an essential tool for organisations to trade confidently in the market, even if they have extended credit lines or are experiencing fluctuating market forces.
“Trade credit insurance can mitigate the fallout from a variety of situations that may leave a company with cash flow issues. These might include a customer becoming insolvent, or the delay of a supplier’s shipment," says Hoppe.
“Businesses trading on credit terms often have substantial amounts of working capital tied up in accounts receivable, which can be risky if customers don’t pay on time. Credit insurance protects cash flow by ensuring accounts receivable are covered no matter what.”
November 4, 2015