Keeping Control Of Your Cashflow: Accountant’s Advice for Navigating 2023
With the new year in full swing, SME owners are strapping in for new client challenges, and a few familiar ones, too.
Nine in ten small business owners see the cost-of-living crisis as a serious threat. Combined with a series of other growing costs, sprinkle on top an impending recession, and we end up with a landscape of uncertainty and vulnerability. The average UK SME has an of average of nine outstanding invoices at any one time, and an eye-watering £23.4 billion is currently owed to SMEs in unpaid invoices.
It’s little wonder that cash flow management will have such a big part to play in navigating the coming 12 months.
Satago is in the business of supporting SMEs of all sizes and industries, to better manage their cash. As part of that, working with accountants and their client portfolios is a major way our solutions are placed in the hands of SME owners who need to improve their credit control, customer risk analysis or find new financing options.
We spoke to some of the accountants who have leveraged Satago for their clients, to understand some of their top tips for SMEs this new year, from practical steps to behavioural changes that can unlock cash, improving the longevity and function of their businesses.
Tip #1 | You’re not a bank
Small or medium businesses cannot afford to behave like banks, especially in economically trying times. Handing out credit to customers who owe you money or letting them pay late (likely to allow them to repay their suppliers earlier) is poor cash flow management practice and should be avoided.
Tip #2 | Look at effect on cash flow, not just profit
When pricing a job, look at the cash flow effect on your business bank account as well as the potential profit that you could make. You might also think about requesting deposits or payment up front. This way, you can proactively prepare cash flows and update them often.
Tip #3 | Cash is still king
Small and micro businesses get into trouble when they run out of cash, and that’s not necessarily when they stop being profitable. Implement a system where you regularly save for taxes, annual expenses and as suggested profit on a monthly basis (also check out a book called “Profit First” by Mike Michalowicz for more on this approach).
Often business owners don’t save for tax liabilities, only to be left flailing when they’re due. Certified, ‘profit-first’ professionals help clients implement a cash flow system which helps them save and – every 3 months – take half of the profit pot over and above their usual wage, as reward for their hard work. The remaining amount is then moved to a vault (savings account), building that ‘rainy-day’ fund for future use. (To learn about this strategy more broadly, we recommend reaching out to contributor Daniel Edwards!)
Tip #4 | Use simple payment methods
To start, get paid by direct debit wherever possible. Make it as easy as possible for your clients to pay you. You could encourage them to setup payment portals like GoCardless, giving you more control of when they pay, rather than waiting for them to make payments when they remember to do so. QuickBooks can also automatically generate a payment in GoCardless which makes the process seamless.
Tip #5 | Scrutinize your payments and expense management
Review sales and debtor management processes and ask yourself honest questions over whether they’re strong enough. How clear are the payment terms? How and when are customer expected to pay? Do you have a process in place for consistent invoicing and chasing non-payers? Here are a few ideas on how to remedy unsuitable cash flow processes:
- Establish crystal-clear terms of trade, agree your terms up front, and then have customers approve and sign to honour them.
- Try reducing payment terms from 30 days to 7, or 60 days to 45. This helps prevent invoices creeping into 60 days or more outstanding, and ideally closes them around the 30-day mark.
- Regularly review and label your expenses, for example; P, R or U (‘P’ for profit-driving, ‘R’ being replaceable, and ‘U’ for unnecessary). Then, set aside cash for anything under ‘P’, cancel the ‘U’ expenses and review the ‘R’ expenses to ensure you are getting the best value for money. It can be as simple as reducing basic office expenditure but if you’re an SME, every penny counts.
Tip #6 | Credit alternatives
If a customer wants finance or credit terms, try and help them find it via alternatives to receiving direct credit that will remain on your books. Options like IWOCA Pay reduce your direct risk and, more importantly, get you paid quicker.
Tip #7 | Don’t be ‘Paul’
You may be asking who Paul is. We’ll explain. Firstly, don’t just assume customers will eventually pay. Chase them actively, keeping a record of their promises and follow up on them. Remember, if a customer is a slow payer, they are likely – as the saying goes – “Robbing Peter to pay Paul.” Perhaps not literally, but make sure you‘re “Paul”, and getting paid first, not as an afterthought.
More broadly, if a customer isn’t paying, then they aren’t right for you anyway – be transparent with them on your terms and you won’t be left worrying.
Tip #8 | Invest in tech Solutions
If you need to work on credit terms, it’s time to turn to tech. Introduce automation into your credit control system to save time and money chasing debts. Similarly, technology can help if a direct debit fails, too. Ensure you have a good debt collection process in place, using easy-to-integrate solutions to keep track of debtors and ensuring they are being regularly chased for outstanding payments.
For a more pre-emptive strike on late payments, fintech’s like Satago allow you to credit check your customers regularly as well as chase debt effectively and professionally. This combination alone will save a business quite a few hours of gruelling admin and difficult conversations, while reducing debtor days.
Tip #9 | Don’t be afraid to chase
However, you choose to do it, with automation, using a VA, or simply setting aside some time every week to review your unpaid invoices – don’t shy away from the need to chase unpaid invoices and prioritise your cash flow.
A massive thank you to our accountant partner contributors who provided the valuable insights featured in this article:
- Peter Jarman FCCA, Parter at PJCO Chartered Certified Accountants
- Cheryl Sharp FCCA, Founder & CEO of Pink Pig Financials Ltd
- Daniel Edwards FMAAT, Director at D&K Accounting
- Stephen Paul FCCA, Managing Director at Valued
Satago helps you to grow your business, providing everything you need to help you, or your clients, thrive:
- Automate invoice chasing, saving them over seven hours a week in admin tasks.
- Access credit reports and protect against risk (no need to pay for additional credit checking software).
- Access a fast and flexible funding option.
- If you’re an accountant yourself, offer a Satago license to clients, free of charge or as part of an enhanced service.
Keep your business in the black, upgrade your processes and create new, monthly revenue lines. Sign up to our 14-day free trial today.