This article appeared in the May 2004 issue of Real Business magazine

Cash problems cured at a stroke with our 10 easy cash-flow tips

If you’ve got the ropiest of ropey business models (think dotcoms) there may not be an easy way out; but a perfectly decent business can run into trouble because its directors are too busy dealing with, well, everything else, and lose sight of a few fundamentals. These 10 tips may sound obvious but they’re just as good for big and small businesses.

1. Review your direct debits

By signing cheques you have control over finances – or so you think. But what about payments which slip through the net? Check whether you’re still paying direct instalments on that equipment you returned to the leasing company last year. What about the pension contribution for the salesman who left a few months ago? It’s amazing how many companies still pay keyman premiums on long-gone directors.

2. Vanity & sanity

We’ve all heard the adage, “Turnover is vanity, profit is sanity” but it’s difficult to turn away business which will keep staff busy, open doors to future business and keep sales ticking along. But if it’s non-profitable or there’s no obvious upside, resist the urge, and lay off anyone just making up the numbers.

3. Cash is king

It’s amazing how many companies with cash problems are neglecting credit control. If you don’t have a full-time credit controller, divide the ledger between two or three sensible clerks and tell them to devote an hour a day to chase late payments. Pitch them against each other – offer prizes for the most successful.

4. Take a holiday

No, not that kind of holiday. A client in cash-flow difficulties had lease-purchase agreements with monthly instalments running into thousands. He contacted the lessor and obtained a six-month payment holiday, (it’s amazing what you get when you ask). The client will eventually pay interest on interest , but it was a useful form of credit at a vital time.

5. Review your terms of credit

A client’s standard terms for payment were at the end of the month following invoice. We reduced that to 14 days, wrote to customers to advise them, and followed up with phone calls that combined reinforcing that message with chasing already-overdue debts. The fillip to cash-flow was significant.

6. Selling the family silver

Another client, who had lost a significant civil-engineering contract, sat on equipment in the hope that business would expand. We reviewed the likelihood of needing those assets versus the cash-flow advantage of selling them, and persuaded the client that the income was preferable. The sale raised more than £50,000.

7. Review your insurance

Every company should make sure they’re adequately insured, but those in distress need to check something else – that they’re not over-insured. One client was insuring cars no longer owned, equipment no longer used, and had employers liability cover based on their payroll before they cut staff numbers drastically.

8. Pay some suppliers

In difficult times, ease the pressure by paying some of the minnows. I observed that a client was getting at least half a dozen calls a day from creditors chasing money, of whom around ten were typically owed just £100. Paying them dramatically reduced the time spent fire-fighting. The larger debts wont go away, but you’ll have more time to concentrate on finding ways to pay them.

9. Taking stock

With thousands tied up in stock, there’s scope to ease the pressure by reducing stock levels. A client with a chain of retail outlets reviewed his re-stocking, changing from like-for-like replenishment to a policy of buying one new item to replace every four sold. If you’ve sold eight vases, only buy two new ones. Or restrict replacement to best-selling lines only.

10. Starting over

It’s frustrating to have staff who aren’t well-suited to the tasks you give them – the sales ledger clerk who used to do the payroll, the bought ledger assistant who worked in the call centre. Imagine that you were recruiting from scratch: if you wouldn’t take someone on, they’re probably contributing to your problems. The pitfalls of unfair dismissal and redundancy are treacherous, but you need to consider all options.

Simon Walters is a director of FD Solutions, a group of chartered accountants who operate as part-time finance directors to small and medium-sized businesses. Simon can be contacted on 07714 237523 or at: