Everyone understands the importance of cash for a company, without it, suppliers, salaries and taxes could not be paid and the company will eventually fail, in addition, every time a company sells a product or service, it runs the risk of not being paid. by the company. client. One of the main concerns of any business should be managing cash flow, ensuring that debts are collected promptly and that there is enough cash available to pay your debts when they are due. In today’s economic climate, this has become even more important as businesses hold onto cash for as long as possible and many businesses fail and are unable to pay their debts.

Here are some tips that could help improve cash flow and reduce the chance of bad debt:

– Make sure credit checks are done on all new customers; If possible, get referrals from at least two current providers, it is also advisable to keep an eye on existing customers to be aware of worrisome changes in their credit scores.

– have a strong but fair debt collection policy, this will tell your clients that they are expected to pay at the required time and that there is no room for slippage, it also lets your credit control staff know what action to take and when to take it.

– If a potential customer has poor credit history, instead of losing a sale, talk to him to see if there is a way to fix the problem, for example, would you consider paying money up front?

– Look for the warning signs of cash flow problems in your administration accounts, pay attention to the current ratio (current assets / current liabilities), it should be greater than 1, if it is less than 1 or if there is a trend that indicate that it falls towards 1 then further investigation would be required. Another index to consider is the acid test index (current assets-stock / current liabilities) which omits the stock from the calculation as it is considered an asset that cannot be quickly converted to cash.

– understand what are the cash flows of companies, think about the time of cash flows in the creation of your product or service, what are the credit terms of your suppliers?, when do you pay salaries?, what credit terms do you give your customers? The answers to these questions will have an impact on the cash flow in and out of your business.

– if orders come in and business is booming, do not assume that cash flow can be ignored, often businesses may have trouble expanding rapidly, this is known as over-trade, an organization’s cash flows need so much consideration in Business growth moments as in the most difficult times.

– Regularly monitoring your cash flow forecast, it could give you an early warning of a potential problem that could be solved if you take action now.