What did lockdown teach us Part 2: Cashflow

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  • September 1, 2020

Last week I looked at how working from home might be a permanent fixture for businesses and the opportunities it presents. No business can survive, let alone grow, without a stable cashflow however.

Lockdown disrupted the balance between sales, overheads, debtors and creditors which ensured a regular cashflow. As businesses find they need to either tighten up their processes, or find new ways of ensuring a regular flow of money into their organisation, I continue looking at the lessons lockdown taught us to help plan for the future.

Factors that impact cashflow

Firstly, businesses should understand the factors that impact cashflow and ensure the processes around them are as efficient and timely as possible.

Payments & Credit Control: Relationships with suppliers and clients will have changed. Regular paying clients might start to drag their heels whilst suppliers who have historically let payment dates slip without consequence are far less understanding.

To secure regular payments, businesses should tighten up their processes around invoicing with accounts teams working harder. Key questions and actions we suggest businesses take when managing their own invoices are as follows;

  • Ensure invoices are sent out on time
  • Ensure invoices include the right information. Even better, get written confirmation from your client detailing what should appear on their invoice e.g. PO numbers, descriptions and dates
  • Follow up on sent invoices to get confirmation they were received
  • Chase payments the week before they are due to ensure it is in their pay run and there are no issues
  • For payments that become overdue, chase them immediately. This does not need to be rude but you should start the process of chasing late payments as early as possible
  • Invest in a system that automates your credit control system to avoid human error, ensure processes are followed and refocus people to work on more valuable areas of the business

On the flip side of the coin, organisations should not be flippant about paying suppliers:

  • Ensure money is put aside to pay your invoices
  • Where possible, pay invoices early. It’s surprising how an early payment of just a couple of days can build up huge amounts of goodwill. Goodwill you might want to call on in the future
  • As you tighten your processes, suppliers will do the same so ensure you have accurate forecasts on your costs. This might sound like more paperwork but systems linked to your accounting program should help reduce this and even automate certain tasks.

A final key lesson on payments that lockdown taught us is the fragility of other businesses and certain industries. If your client base is in a highly impacted sector such as travel, hospitality or high street retail, you might want to consider receiving payment upfront to reduce your risk.

Expenditure: You will have already reviewed your expenses to see what you can save and what new costs you might have incurred. Now is the time to start thinking where to spend again. What software will help automate processes again and free up people to focus on growth? Which partners should you consider engaging with that resolve a problem? Should you invest in new marketing campaigns to target new sectors? Do you need to launch new products to address changing customer demand?

Government Support: There are still government support schemes in operation. Once you understand your cashflow position, you might want to take advantage of some of these. Even if cashflow looks good now, what do forecasts look like in the future? The UK Government has announced we are now in a recession so ensuring you have surplus cash over the next 6-12 months could be critical.

Many of these packages will be ending soon however with CBILS applications closing at the end of September and the Bounce Back Loan due to end on the 4th November 2020.

With cashflow being such an important aspect of all businesses, we’ve been helping businesses identify these pots of money they can gain access to now so they are prepared for any eventuality.