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Having a decent cash flow in your business is crucial to your success.

Without enough cash, you won’t be able to pay your staff, or your suppliers and eventually your business will grind to a halt. Unfortunately, there are several major mistakes that most businesses make when it comes to cash flow. The good news is your business does not have to fall foul of them. Instead, keep reading to discover what they are and how to avoid them below.

Not including an oversight

First of all, while no one wants to dwell too long on things that could go wrong, it is worth noting that the unexpected does happen. Often with alarming regularity. What that means is you must factor this into your budgets when it comes to cash flow.

To do this you will need to make sure there is enough of a buffer for you to cover your ongoing business costs, even if something like your biggest clients don’t pay on time, or the price of your main supply resource suddenly goes up.

Setting long invoice terms

One of the biggest mistakes businesses make when it comes to cash flow is giving their customers long invoice terms from the get-go. Remember the longer the payment terms, the longer it will be until you get your money, which is always bad news for cash flow.

Instead, when you take on new customers it’s best to set shorter invoice terms to begin with. A good guideline to remember here’s to never set payment terms for more than a month when you first take on a client, or unless it’s part of an agreement to increase their order with you.

Never chasing overdue invoices

Another major mistake that many businesses fall foul of when it comes to cash flow is not effectively chasing overdue invoices. However, you’re likely to be very surprised as to how effective a quick call to the party that has an outstanding debt can be.

The good news is that you can find resources like this call script for past due invoices that can help make catching easier. Not to mention give you the tool and information to make it almost impossible for the other party to refuse to honour their outstanding debt.

Not using services like invoice factoring

Some businesses also forget that even when they are dealing with a customer that is repeatedly refusing to pay an invoice, there are still things that can be done. One such thing is to take the debtor to small claims court, although this does tend to take up quite a bit of time and energy.

Another great option is to use an invoice factoring service which will pay you the majority of the outstanding invoice thereby increasing cash flow, while also taking on responsibility for chasing the debt.

Not using electronic payment

Last of all, remember that if you pay your suppliers electronically you can leave it until the last minute to pay your bill, but it will still be on time. This means you won’t risk incurring any charges or annoying your suppliers, but you can keep the cash within your company for as long as possible, thereby improving your cash flow.

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