Optimising cashflow is essential for businesses, requiring a clear understanding of the pivotal difference between profit and cashflow. While profit mirrors invoiced work or goods sold, cashflow represents the tangible money in the bank. The primary challenge lies in minimising cash lockup, where funds become entangled in work in progress or outstanding invoices.
Key Processes for Improvement:
- Invoice promptly: Speed up payment by invoicing customers immediately after delivering a product or service.
- Progress billing: Consider invoicing clients regularly for ongoing services to prevent significant work in progress.
- Clear Terms of Trade: Ensure customers understand payment expectations by having them sign off on clear Terms of Trade before engaging in business.
- Shorten payment timeframes: Set clear expectations for payment, considering shorter timelines like 7 or 14 days after invoicing to reduce cash lockup.
- Information on Invoices: Provide comprehensive information on invoices, including bank details, due dates, and payment status (current or overdue).
- Diverse Payment Methods: Offer multiple payment options such as direct debit, credit card, Eftpos, and debtor finance to cater to customer preferences.
- Prompt Payment Discounts: Consider offering small discounts for prompt payments to incentivise customers.
Implementing these Changes:
Consider making these strategic changes to your billing and collection processes to significantly decrease cash lockup. These adjustments not only streamline operations but also enhance the overall customer experience.
Reducing cash lockup is pivotal for optimising cashflow. By addressing billing and collection processes, businesses can unlock funds that are otherwise tied up. For a comprehensive approach tailored to your business, consult with us to create a Cashflow Management Plan. Let us guide you towards tangible improvements in your cashflow – a transformation in cold, hard cash.