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By Sharon Kearns
SGK Accountancy Services


Nowadays you’ll hear a lot of people say that ‘cash is king’. Well, they’re right. Without sufficient cash to operate a business even the most profitable ones fail. It’s important to realise that profits are not the same as cash in the bank...

Now for the good news. By implementing some simple cashflow strategies your business can very quickly safeguard its position.

Here are five of the most effective strategies that I’ve implemented with my clients:

1. Reduce your stock

Most companies hold too much stock just so they can meet every customer’s demand.

Age your stock regularly and discount the slow-moving items. Unless absolutely necessary, don’t re-order these unless you know of an incoming order.

Meet your suppliers to discuss improving delivery times and try matching these as much as possible with incoming orders.

What products do you stock most of? What products contribute to the highest proportion of your stock? Focus on improving your stock procedures for these items first and you’ll be amazed at how quickly you can release some cash.

Remember not all customers expect their orders to be issued straight away. If you have a lead time make sure they’re aware of it – that way they can order in advance.

2. Improve cash collection procedures

Issue sales invoices straight away. If you wait until the end of the month and then offer 30 days’ credit your customers are effectively getting up to 60 days (and that’s assuming they’ve paid on time).

Issue customers with monthly statements. Invoices do go missing or are sitting on desks waiting for sign-off. Statements also act as a further reminder for customers of their credit terms.

Call customers before invoice due dates for payment schedules. This is especially important if your customer is a large company, for instance insurance or multinational. These usually have only one or two payment runs a month and you want to make sure your invoice is approved and in that payment run.

Improve your procedures for opening new accounts. In other words, insist on credit checks and other supplier testimonials before you agree credit terms with them.

3. Check your VAT status

VAT is normally accounted for on a sales invoice basis, that means payable to Revenue based on the total VAT on sales invoiced during the period regardless of whether you have been paid in that period.

Some businesses, however, can return their VAT based on the sales invoices paid to them in the relevant period – meaning you don’t pay your sales VAT until you’ve been paid. This has huge cashflow benefits if you offer generous credit terms to your customers.

To avail of this your turnover for the year (exclusive of VAT) must not exceed €1 million. Businesses which supply unregistered persons, and these account for at least 90 per cent of their turnover, can also avail of this, for instance hairdressers, hotels, retail outlets and so on.

If you are only registering for VAT you can simply select this option on your TR1 or TR2 form.

If you’re already making VAT returns simply send an email to your local tax office with all your details, why you want to switch to cash receipts basis and from which period.

I’ve also attached a link to Revenue with more information on this but if you’ve any questions please contact me or your tax adviser.

4. Use supplier credit terms to the full

If you have 30 days’ credit then use them.

Try to match your supplier and customer credit terms. If you have only 30 days with your supplier but you offer customers 90 days then you are putting a lot of strain on your cash flow. Talk with suppliers about extending credit terms – not all will but even if some do then it’s to your benefit.

Try not to pay suppliers in advance – this is very relevant with service companies, for instance marketing and advertising, consultants etcetera.If you must pay in advance (dealing with one-man operations) inform your client and get them to pay that element of the project in advance also, otherwise you are in negative cashflow from the beginning!

5. Stage payments

This is particularly relevant for builders, architects, web designers, machine automators and designers, marketing companies and so on.

If your service / project is likely to span a few months then issue a sales invoice at each stage. When taking on the contract discuss the stages involved, devise when each target is met and then issue a stage invoice straight away. Once you are upfront with your customers that this is your company policy they will more than likely accept it. Why not also ask for a percentage payment up front? Once agreed make sure you build these terms into your engagement letter or your terms and conditions.

There are lots more ways to improve cashflow that I haven’t included and I’d love to hear what works for your business. Some of the tips above won’t be relevant for all businesses but if you decide to take some on board I’d love to hear how you get on.

Alternatively contact me and I can design a cashflow improvement plan tailored for your business!

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Business & Finance - Business & Finance - Expert Advice

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