Keeping cash flowing into the business is a challenge for many small companies, and is particularly important during an economic downturn. We have outlined below some key methods which will help your business manage and improve cashflow.

This is an edited extract from a more detailed information sheet distributed to delegates at the recent Adams Solicitors ‘Credit Crunch’ seminar. This also covered in some details key options for the swift recovery of debt.

If you would like the full information sheet, please contact Kelly Hodson at Adams Solicitors on 020 7182 4500 or email [email protected].

• Bill promptly - invoicing promptly and regularly should help ensure a steadier flow of cash into the business. Negotiate for regular payments across the life of any long-term contracts you may have.
• Recover debts - chase up any debts owed to you.
• Factoring - sell outstanding invoices to a third party, known as a factor. Factors pay some of the debt off in advance of collection.
• Renegotiate your credit limits - adjust payment dates and credit limits with your main suppliers.
• Approach your bank - discuss with your bank whether they could extend more finance. But be careful not to worry the bank unduly, as they could call in any overdraft you have and make matters worse.
• Sell assets - raise cash by selling under-utilised assets and then leasing them back. However, you must sell the assets at their true price and check whether the sale will result in a profit or a loss.
• Avoid overtrading - don't continue to accept orders and try to fulfil them if you don't have enough cash or resources to do so.
• Trim your inventory - your inventory ties up your cash. It's a good idea to take the time to plan any stock reduction programmes.
• Reduce other overheads
• Prevent late payment - Timely payment for goods and services supplied is not only good business practice but also helps to improve relationships between you and your customers. It's better if you ask for payment in advance - either in full or in part, ie a deposit. If you do not, there are ways you can encourage prompt payment after you have fulfilled the order, eg offering discounts and/or ensuring your customers understand your terms and conditions. Also obtain payment on completion or handing over the goods. 

Getting your terms and conditions right
Terms and conditions - sometimes known as terms of trade - are the terms of the contract between you and your customers. Some businesses have standard terms for all transactions. However, you can have different terms and conditions for different transactions. In some cases the terms may be based on an informal, verbal arrangement. However, there is less chance of a dispute arising if the agreement is clearly set out in writing and agreed in advance with your customers.

Terms and conditions should cover:

• Costs.
• Delivery arrangements.
• Payment terms. Is it full or part payment in advance or payment in arrears? You could offer a discount for paying by the due date and/or for paying within, for example, seven days of the invoice date.
• Setting levels of credit limits.
• Credit periods. If you don't agree a credit period with your customers, the law sets a default period of 30 days.
• Right to charge interest on late payments and claim compensation for debt recovery costs.
• A commitment to quality.
• retention of title - allows you to retain ownership of goods already supplied until they are paid for
• time limits for raising a dispute
• circumstances in which the contract might be breached or come to an end
• contra and offset deals against payables - where the buyer pays you in part or full with their products