Manage Cash Flow to Succeed

Cash for business like oxygen to the body. Without it, it will die.

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• 82% of businesses that fail do so because of cash flow issues.
• 50% of new businesses cease trading in less than three years.
• Businesses that intend to survive must pay attention to cash flow, right from the start.
• Here’s HomeForce’s “Must Do’s” to maintain a positive cash flow

• Send an invoice and receive payment for it while still on site when possible
• If not possible to get payment on site then ask the customer to approve / sign off your invoice while you are still on site.
• At worst send an invoice on the same day.
• Do this for all jobs, not just the big jobs.

• There is no such thing as “standard terms”.
• Payment terms can be anything you choose. They are a condition of you agreeing to do work.
• Keep payment terms to “Payment on completion” or “Payment Within 7 days”
• There’s no need for terms to be any longer. The work has been completed; it’s time for the customer to pay.
• Shops on the high street don’t offer payment after 30 (or even 60) days.

Make payment terms clear from the outset

• Include them on websites, emails, quotes & estimates
• It’s too late to do anything about it if they are just on an invoice
• Be clear what the penalties will be for late payment
• Customers are agreeing to terms when they instruct work as long as those terms are clear from the start.

• This doesn’t mean send an aggressive text or email.
• Have a politely worded email or letter template ready to send
• Follow up further late payment a maximum of three days later. Use another polite, but more strongly worded email.
• Include a phone call (and keep a record of it) at this stage.

Use accounting software 

• It keeps track of money in the bank, how much is owed and how much will be due to be paid to suppliers.
• Some accounting packages track payments and send payment reminders automatically
• An accounting package will also reduce time spent doing admin and reduce accountants charges.

• At a minimum enter all expenses and invoices from suppliers twice per week.
• Check bank balances daily to avoid going overdrawn and incurring charges.

• Some customer are suspicious when asked to do this.
• But you are a small business, you can’t afford to provide free credit.
• Once customers have paid for materials give them a receipt listing what they have paid for.
• Alternatively ask the customer to pay the supplier directly
• On some jobs materials can cost a substantial amount and the supplier may ask for payment before the customer pays. Small businesses can’t afford to subsidise customers in this way.

• For longer lasting jobs take payments in  instalments while the work progresses
• Draw up and agree this payment schedule (based on the proportion of work completed) before work starts.
• If a customer withholds full payment at the end of a job for a minor issue then not having taken payment by instalments can lead to major cash flow problems as suppliers and sub contractors will expect payment.
• In the payment schedule include a small retention (5 – 10%) payable a set period after work is completed satisfactorily. This allows the customer long enough to discover any faults and is an accepted practice in law (See “Scottish Minor Works Contract”).

• There is a saying that money is the most expensive thing to buy so avoid having to pay for credit when ever possible
• Keep VAT, PAYE, NIC and Pension contributions up-to-date to avoid punitive fines from HMRC.

Find out how HomeForce can help with all of the above

• Register your interest
• Tel: – 0131 315 0000
• Email: – info@homeforce.co.uk