Protecting your company cashflow.

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( Business owners are always very keen to protect their intellectual property and copyrights but one of the most important aspects of running a successful business is managing cash flow.

From credit checking potential customers, to chasing invoices, and building up new client banks, cash flow truly is the lifeblood of any business.

Any new business will get really excited when they take on their first client or make their first sale, but before you rush headlong into doing the work or supplying goods and services, you have to look at the potential risk.

Is this new client able to pay your fees or prices? Do they expect good terms or rates? Are they are solvent business? i.e. do they have the money to pay you. There are some questions you need to ask to make sure that you are protected and your cash flow is protected.

Credit checks

Luckily you don’t have to embarrass yourself by asking your new client if he has the money. There are a number of credit reference agencies that cover businesses so you can, for a small fee, find out their credit worthiness – this is sort of the same as your credit history file, but forcashflow business.

In this way you can make a more informed decision about whether you want to work with this new client; whether you need to amend payments terms; or simply not work with them, full stop.

You will also be able to see if they have had any fraudulent activity or if the directors have been involved in any dissolved companies – all of which will help you make a decision of whether or not to a risk of 30 / 60 / 90 day payment terms.

Invoice management

Once you have made a decision on a new client, you need to make sure you raise an invoice and send it to the correct people for payment. You also need to ensure it has all your terms and conditions of payment, with all methods of payment options.

Invoice creation, management and payment is not a sexy part of running a business, but it has been proven time and again that cash flow has been the death of many a good business.   You need to make sure you have systems – or someone – in place to make sure they are on top of invoicing.

Defining payment terms

It is very important that you have a defined payment terms structure. Not every client you work with will have the same terms but you need to make sure you work to rule. Bending these rules can lead to issues overpayment and cause cash flow issues. For large orders from new clients for example, you may ask for 50% or even 100% in advance, and in some industries this is acceptable.

You need to make sure these terms are laid out to a client ahead of ordering and then reinforced on the invoice. In this way there are no surprises that damage a company financially, and taking out a business loan from an organisation like Everline won’t prove necessary. Terms can change for clients as and when they become regular orders – but again, it is your call.

Financing cash flow

There are a number of ways to finance cash flow, but we wanted to give you an idea of a couple which you can use to look at supporting cash flow growth if you are looking to invest or grow your business.

Invoicing factoring

Invoice factoring is a process where you basically “sell” your invoices to another company and they prepay them for you at a premium. This is normally a percentage of the invoice.

This sounds like a full proof system where you don’t have to chase payments etc but you do have to make sure the percentage they take in fees still leaves you with a profit and you need to find out what happens in the company defaults on payment. Your company could still be liable for a refund of the payment to the invoice factoring business.

Grants and Loans

You could also look at obtaining a government grant or apply for funding to complete a relevant project that could attract grant funding. Grant funding in some cases is not repayable but you have to meet certain objectives. This could be a great way to bolster cash flow while at the same time grow your business.

Going after bank or alternative business finance again is another way to get a cash injection but you will have to factor in repayments into your cash flow. There are a number of different loan facilities from high street banks to peer to peer lending, business finance companies and business investors, or business angels.

Make sure you research the best options for your circumstances.

As you can see, cashflow management is not simply about getting more customers in the front door, you need to make sure you have processes in place to make sure the cash does flow into your business. If that becomes an issue or you need to increase cash flow, there are lots of options to consider.

Staff Writer; Jerry Moore