Cash Flow Management

Last week the Office for National Statistics (ONS) stated that the UK’s rate of inflation dropped to 7.9% in the year to June, which means the rate of price rises in the UK has slowed more than expected, down from 8.7% in May – although it still remains high. Falling fuel prices contributed to the drop, while food prices rose less quickly than in June last year. Earlier this month, the bank of England increased interest rates by a quarter percent as they continue with their plan to get inflation down to 2 percent. This took the base rate to 5.25%.

With increased supplier prices, continued rises in interest rates, and high annual inflation, managing your business’s cash and understanding the flows is a vital tool in maintaining resilience and being able to adopt flexible strategies for success. An example of recognising the importance of cash flows is Amazon. They recently launched a flexible financing programme that gives businesses access to funding linked to their sales, allowing them to repay as they earn. A merchant cash advance, delivered in collaboration with financing provider “YouLend” could provide a new flexible financing option for eligible UK-based businesses selling on Amazon.co.uk, which provides greater cash flow suppleness in addition to the fixed-term business loans already offered by Amazon Lending. We expect to see more businesses adopting “elasticity” arrangements with their customers in the future.

How To Effectively Manage Cash Flow

No matter how inventive or simple your business model is, you can still have problems with cash flow and here are some of our thoughts on managing the flow of cash in your business:

The first stage of understanding and predicting how funds flow is to perform a health check on your accounts. Look at your latest profit and loss statement and check that your income is sufficient to cover your expenses. If your profit is falling behind your expenses and cash flow is slowing down you might need to take action. Prepare a funds flow statement so you know where the money goes.

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Next, create a yearly budget, look where cash could become tight and identify months where you can save to cover the quieter times. Look at those quieter months and think about flexible work scheduling, new products or services, or other activities to tide you over.

Finally, make sure you collect your money from those who owe you quickly. Reward customer loyalty by offering early bird discounts. Set credit limits and payment terms to ensure customers follow the rules. If you take on new customers, make credit checks. Penalise late payers and request upfront deposits or payment (if appropriate). There is a variety of techniques that can be used to improve cash flow. Consider using a financial management expert such as Lotuswise who will help you implement these techniques.

LotusWise can help

Are you looking to manage your cash flow? Lotuswise can assist! Call us on 02033671106 or comment below!