What is cash flow?
Cash flow is the measurement of how much cash was brought into the business (incoming) and how much cash was spent (outgoing).
Incoming cash includes money introduced from directors and money received from customers.
Outgoing cash includes money paid to suppliers, wages paid to staff and any loan repayments.
Essentially, cash flow looks at all money coming in and out of the business regardless of where it is from.
Why is cash flow important?
Cash flow is important as without cash your business will not operate. This is because:
- You won't be able to pay suppliers or purchase new
supplies.
- You won't be able to pay your staff or contractors.
- You won't be able to reinvest any cash into your business to support its future.
How to improve cash flow
- Complete a cash flow forecast to help predict when you may come
into any difficulty so you can prepare and plan ahead for
this.
- Actively chase your customers to ensure you are being paid on
time.
- Look into setting up a system which automatically takes
payments every month from your customers, for example using
GoCardless.
- Look at adjusting your payment terms with your customers if
they regularly don't pay on time, for example, upfront payment
or 7 days rather than 30 days.
- If the 3 steps above don't help with receiving payments on
time from customers, consider invoice factoring.
- Maintain good relationships with your suppliers to try and extend your credit terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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