How to keep the Cash Flowing

If you’d opened the papers last Friday you’d have been forgiven for wondering if it was worth carrying on. Moody’s had downgraded their ratings on Lloyds TSB and RBS; Tory backbenchers were muttering about ‘not supporting the banks indefinitely’ and the Governor of the Bank of England was discussing “the worst crisis ever.”

A sense of perspective may be called for. People aren’t (yet) marching from Jarrow to London and that same Friday evening quite a few of us would have watched the England game on our plasma TVs. And yet in one sense, Mervyn King is right to talk about a ‘crisis.’ For SMEs, getting paid seems to be more difficult than it has ever been.

This is the one theme that crops up time and time again in Board meetings. It’s even mentioned in the taster sessions I run for potential Board members – where you might expect people to be slightly more reticent about discussing cash flow. Finding the work is straightforward: getting paid for doing the work is becoming more and more problematic.

If you’re running a small business, there’s one inescapable fact. The cash flow has to keep flowing. So here are a dozen suggestions aimed at helping you manage your cash flow and keeping the amount of money people owe you under control.

1. You must keep score. Even if it is only on an Excel spreadsheet you need to know how much cash is outstanding and how long it has been outstanding for

2. Before you do any work for anyone you need to set out clearly what you’re going to do and when you expect to get paid. If you haven’t checked and updated your terms and conditions for a while, now would be a good time to do it. If you don’t have a T&C, get your finger out and write one

3. Learn to recognize the warning signs. Someone asking for 30 days when they’ve agreed to pay on delivery is not a good sign. Saying “I can’t pay until my bookkeeper comes in” doesn’t wash either. And despite the proliferation of internet banking, I have yet to meet anyone who genuinely doesn’t have a cheque book

4. If they haven’t paid for job number one, don’t start job number two. No exceptions

5. Now more than ever you cannot allow one client to account for too big a percentage of your turnover. Even more importantly, don’t have too much money outstanding from one client or customer

6. If your client or customer is overseas, then they must (and that’s MUST) pay at least a 50% deposit up-front. Frankly, payment in full would be more sensible – you’re doing the work; let them take the risk

7. One for the creative sector: explain that if they pay on time they’ll get a far better job from you (this is true for every ‘creative’ I’ve spoken to)

8. It’s 5x easier to get new business from an existing client etc etc – but an existing client who pays on time is now worth his/her weight in gold. Make sure you give your existing clients outstanding service – you can’t afford to damage your cash flow by losing existing clients

9. Invoices for less than £100 should be paid in advance or on delivery. It is simply not worth your time having to chase small amounts

10. And if they pay you the same amount every month, why isn’t it on a standing order? Then you know the day it’s supposed to arrive and you can stop worrying.

11. Don’t be afraid of staged payments. In fact, sell them to your client as a benefit. They’ll start paying you sooner, and you’ve a built in ‘early-warning system.’ Plus, there’s a good chance they’ll settle up more quickly, as the final payment will be less.

12. Finally, let your clients know how you’re going to communicate with them regarding payments. One of my Board members swears by the following system:

• A week before the invoice is due, they send an e-mail reminder
• If something is unpaid on its due date, they always ring to check there isn’t a problem
• And once it’s overdue, they use the phone – not an e-mail

I hope that helps. I suspect that getting paid is going to remain the number one problem plaguing SMEs for some time to come – so if anyone has anything to add, or a foolproof system that works for them, we’d all be delighted to hear it.



  1. John Maughan · October 13, 2011

    Like it – If I have never done business with a customer before, I insist first order is settled by card payment or BACs/Cash. Then we can talk invoicing terms.

    If someone is late, put them on stop – I’ve been on stop because someone is late – why should I accept that!

    • edreidyork · October 13, 2011

      Hi John – good to hear from you, and thanks for being first to comment – agree with it all – good stuff

  2. Brian De Vere · October 14, 2011

    Really important advice here Ed to all businesses. Anybody in any doubt should have a look at Baker Tilly’s Sep/Oct 2011 distress monitor. They report that 1 in every 5 Yorkshire & Humber businesses have a current ratio less than 1! An indicator that they do not hold sufficient resources to meet their current committments. Cash is very much king and always has been.

  3. Mark · October 14, 2011

    Depending on your turnover, you could also factor your invoices out to a third party. Although you’ll pay a few percentage points as a fee it leaves you to get on with your business and can improve your cash flow.

  4. Martin Bell · October 14, 2011

    Ed, really good advice, after all clients aren’t customers until they pay!
    I would also add, ensure you continually check up on existing customers credit ratings- there are tools available to do this. Its a great “early warning signal” and is often ignored when you have done business with the same clients over a long period of time.

  5. Andy Gambles (@andygambles) · October 14, 2011

    My business is almost entirely subscription based. Customers are billed before service commences and renewal is billed on the 1st of the month prior to renewal date. Failure to pay means services are cut off.

    I do not see why more professional services do not take this route? Accountants, solicitors, consultants etc. A regular monthly standing order/BACs payment to cover your annual fees. This is clearly a cash flow advantage to clients (and also the supplier).

    I also get a few customers (namely larger corporates) who rotort with “our standard terms are 60 days”. Just be sure to push your terms. As Martin says a customer is not a customer until they pay.

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