Cash Flow Management

  • Anil Kanda
  • 21 May, 2012

Successful cash flow management is essential for any business to succeed. It’s an issue that businesses who wish to trade internationally need to be particularly aware of. With overseas trade, the time between the start and completion of a transaction is often much longer than occurs in domestic markets.

Typically, businesses experience funding needs when they need to buy materials to produce goods for new contracts, but haven’t yet been paid for other contracts already finished; either that, or when a new, large contract is undertaken which requires a larger capital investment.

Every business has a different trade cycle. This depends on many things, but includes: which sector you operate in; what terms you have agreed with your suppliers; the length of time it takes you to produce your goods; transport used to ship; and, of course, the terms you have agreed with your buyer.

As well as taking advantage of tailored funding solutions, you can help to keep your cash flow moving in a number of ways. Late payments can cause cash flow problems, reduce your profits and waste valuable staff time when chasing payments. So how could you help to prevent this? Here are a few points to consider:

• Undertake a credit check on your buyers to make sure they can pay. But don’t forget your suppliers: a reliable supply chain is equally as important.
• Ensure your sales contracts include detailed payment terms and the date by which invoices should be settled: make your contracts legally binding.
• Consider including a financial penalty for late payment, but also balance this with incentives for early payment too.
• Don’t rely on a single buyer or supplier. Using a number of buyers and suppliers helps spread the risk in the event that one of them should fail.
• If you have any concerns about your customers’ abilities to pay, think about bad debt protection.

A service provided by Ashley Invoice Finance, bad debt protection will ensure that you are paid even if your customers default.