Any good tips for improving a cash situation?

Saturday 01 February 2014
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Steal some?  Nah, I’m joking.  You’d get caught and it’s definitely not the best way forward as in an Island community people buy from people they like and getting a reputation for that is not going to be helpful to the long term interests of your business!!!

There are 7 main sources of improved cash flow.  Customers are the first place most business owners look and the most obvious thing is to chase down the people that owe you money.  This is often just hard graft and there is huge amounts of literature on the internet about the “normal” ways of getting the cash out of customers quicker.  So I suggest for tactics on quicker debt collection, use google.  I’ve heard it’s pretty good.

There are however a couple of less usual tactics that will help get you paid quicker by customers that I have seen work recently outside of the usual.

The first is to “change the game” by requiring deposits or getting paid upfront.  When we discuss this in our business development meetings the initial reaction of owners is nervousness.  It’s up to you to make that call but my experience is that our owners have been pleasantly surprised and it has not effected prospect conversion ratios.

The second is to offer significant discounts for early settlement.  If you are a business that quotes competitively against others then people will look at the post-discount price and assume they have to pay quickly.  Often businesses offer 5% discounts or 5% penalties for quick or late settlement respectively.  These never tend to work as people just pay the invoice irrespective.  If it’s 30%.... That’s worth going after and everybody knows it – including the customers.

Suppliers are another source of cashflow.  Now.  Two years ago I wrote in Chamber Online about the business benefits of paying on time and I maintain that.  So I am absolutely not suggesting not paying outside of terms.  What I am suggesting is perhaps negotiating new terms.  You could say to them that if you can agree volume discounts and increase sales to your customers everybody wins?

Another option is to use less by being more efficient and identifying those parts of your product or service that customers don’t value and not buying them.

You could just pay less by negotiating discounts.  Not easy, but times are tough for most and business is business.

You will also have some assets.  It may be that you can increase the return or cash flow on those assets, through better bank deposit rates, dividend generating investments or by better exploitation of them.  Perhaps even a sale of the ones you don’t really use that effectively.

Technology is moving incredibly fast and there are now ways of reducing staff and IT costs dramatically by embracing cloud technologies and off the shelf software solutions like Xero for accountancy and Office365 for word and excel document storage and email.

Lots of businesses in the world have the same problems as you and industry specific software solutions are being developed so fast that there is already likely to be an answer to your problems out there.  The tricky bit can be finding it and implementing it but the prices are surprisingly low.

Outside your own business there are other sources of cash.  The States for example!  You could pay less tax by structuring your business in the most effective way.  Whilst, there is often an upfront cash investment provided the investment pays itself back within a time frame you are happy with – it’s a bit of a no brainer. 

The States are also now looking to help with training grants, Advance to Work schemes and to a lesser degree the Innovation Fund.  Bit annoying, that I can’t really complain about them right now!

Lenders can often help bridge the gap from February to April after the Christmas cash flow is used up.  Banks… are generally a bit unhelpful and rubbish unless you’ve got security and patience.  It’s not the relationship managers’ fault so don’t blame them.  It’s not always the case, obviously, but the “Jersey approach” of a few years ago has well and truly gone.

There are however an increasing number of finance companies providing new solutions to age old problems as the laws change and asset finance, debt factoring and private finance are all viable alternatives to the bank provided you negotiate a good deal.

You could also potentially find cash from new investors or existing shareholders but if cash is tight your negotiating position won’t be great.  Finally, as the real lender of last resort, family.  Could make for an uncomfortable Christmas 2014 though so not well advised!

So 7 sources of cash, some easier than others to arrange.  Go get some! (and not by stealing it…)