Master your cash flow report and your creditors with these 4 tips

It’s every small business owner’s nightmare: the final demands are coming in, and you can’t pay. Your cash flow has hit a crunch and you haven’t got the funds to satisfy your creditors. You know the money should be there, or will be there, but currently the coffers are empty.

Cash flow is critical for the survival of your business. According to research by ASIC, 41% of company failures are due to inadequate cash flow or high cash use. And we all know, once it gets to the point, where you can’t pay your bills anymore, insolvency is just around the corner.

So what’s the best way to combat this issue? You could get a bank loan to help you get out of a sticky situation. The problem is, there’s a limit to what the bank will agree to in terms of size and frequency of temporary overdraft increases. A better option is to try and avoid any problem before it’s ever upon you, and the best way to get into shape is to use a cash flow report. Below are four tips that you can use everyday in your business to help you master your cash flow report and better manage your creditors.

1. Track your cash
Anticipating problems is much safer than being surprised by them. A cash flow report helps you to track your cash in, cash out and invoices issued on a month-by-month basis. You can set up a spreadsheet to do this or alternatively use professional accounting software which can streamline and automate a lot of manual processes and make things much easier for you.

Until you actually have a clear view of incomings and outgoings it’s impossible to know if you’re even spending appropriately. You don’t want to be stretched to the limit every month. But if you are going to face a shortfall, at least you can determine that in advance.

Having a better oversight of your business’ finances will help you work out what payment terms you’re able to accept, and anticipate problems well in advance. Approaching a creditor before the crunch is better than waiting for payment deadlines to expire.

2. Negotiate a payment schedule
Agree clear terms of payment with your suppliers in advance. Ideally you want the maximum window between when your suppliers deliver goods and services and when you pay them, while maintaining a positive relationship with them.

You should also consider paying for non-current assets over a longer period rather than on delivery. Once you’ve established what the terms will be, you can use your cash flow report to ensure you’re going to be able to pay by the agreed date.

3. Time your payments
Try to pay your creditors as late as possible without infringing payment terms: ie on the due date, not before or after. You definitely don’t want to risk your credit with suppliers by being late. But there’s also no point settling bills early, if a later payment fits better with your cash flow.

Accounting software can help with this. You can schedule and automate payments so you don’t miss a deadline or pay too early. Either way, ensure that whoever is responsible for paying bills ensures that nothing is paid before it has to be.

4. Renegotiate terms
Creditors want your business to stay afloat: they want to be paid and enjoy your future custom, it’s not in their interest for you to be driven into bankruptcy. As a result, if you’re suffering a temporary cash flow crisis and you approach them early, many will be patient and amenable to negotiating a different payment schedule. This may involve accepting smaller or slower payments until things are back on track for you. But first you’ll need a clear idea of how much you can actually pay suppliers and when, which a cash flow report will shed light on. Having drawn up a proposal based on this, you can then approach them to negotiate new deadlines.

Your cash flow report will also help you negotiate with your bank if you do need a loan or overdraft facility to meet your bills. The bank will want to see how you can repay them.

Above all, a cash-flow report puts you back into the driving seat. It gives you a bird’s eye view of your business, so you can understand your cash flow and be able to anticipate cash crunches before they occur,. This will help you avoid issues with your creditors, keep your business running smoothly, and take the stress away from you.

Download our free ebook below ‘Getting on top of your small business finances’ to gain more insight into some of the manageable, cost-effective steps you can take to resolve key problems when it comes to accounting and financial management for your business,