Over the last two months monitoring cash flow has been a top priority for most businesses. For most, this has been activity thrust upon them by the current situation. Even though the shock of lockdown is becoming a distant memory monitoring cash is still a vital activity and one that should be led by senior leaders/owner managers.

For many SME owner-managers, proactive and systematic cash management is not something done routinely. We know from the results of research that cash flow hiccups are often identified at the eleventh hour giving little time to identify and arrange a suitable funding solution.

“Instead of looking through the telescope the wrong way round business owners should be looking through it normally to spot cash challenges in the distance and give time to deal with them.”

Without cash a business is doomed and therefore its management should be the number one priority of every senior team or owner-manager.

Outlined below are five tips to help your business become more proactive around cash management.

Make cash management everybody’s priority

Communication is important. Inform senior managers why cash management is important. Let them see the plan, the challenges, risks of not being proactive and the numbers involved. Focusing the minds of leaders, senior managers and budget holders and asking them to communicate to their teams makes cash management an important task for everybody, part of every employees role. Communicating, top-down ensures there is no misinformation within the team and everybody knows how important a task it is.

Manage cash inflows

For most businesses that need to consider managing incoming cash, managing Aged Receivables is where the focus should be. Consider automating the routine day to day debt collection with an app like Chaser leaving your teams time free to focus on that stubborn debt.

Think too about how to make it easy for your customers to pay you. Adding payment links to digital invoices and collecting retainers by Direct Debit may speed up payment times too. Check out Xero support for how to do this to invoices in Xero.

Finally consider undertaking credit checks on all new major customers. This will help you evaluate the risk of non payment before you start to raise sales invoices but may also enable you to negotiate different payment terms.

Have you taken advantage of all government schemes?

There have been almost weekly announcements of support for businesses and you would have been forgiven for missing one of the non mainstream support packages.

Review the .gov website for details and follow them up.

Talk through cash flow shortfalls early

We all have people that support us when we need it. Whether that is an employee or your external accountant, talk to them about cash worries and challenges. Identify the challenge and find a solution to deal with it. For help and assistance with managing cash and finding a solution, talk to our funding specialists.

Revisit your cash flows regularly

This is a vital activity. Amend cash flow models and forecasts as things become more certain. If you are establishing plans to bring income forward or steepen the cash coming in curve on the way out of lockdown make amendments showing the impact of each measure.

Add in changes to government backed support schemes as they are secured and update predicted cash coming into the business when you speak to debtors.

Technology

There are lots of examples of apps that pull data from your accounting software but as yet I am to be convinced on how accurate a picture they present. For now in our business we still use a spreadsheet to forecast cash over the current month and then the next 90 days. This is a daily summary and reconciled each day to the bank.

Final thoughts 

The management of cash flow has never been so important as it is now. Understanding where any gaps might be, how deep they may become and the impact on the position of the business is vital if long term health is to be preserved.

Leading from the front with a clear and proactive message on the importance of good cash management should be a top priority in any SME whilst owner managers in SME’s should focus on cash and ensure they understand the position themselves.