As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
Cash flow dictates whether businesses thrive or fall.
Getting on top of your cash flow also means you spend less time operating day-to-day and more time following your strategy and achieving your goals.
With that in mind, we take a look at five types of financial products that can help you improve your cash flow.
Credit control systemsIf you extend a line of credit to your customers, you’re essentially lending them your money. While doing so can help you to increase your sales – as your customers can often sell the goods they have bought from you and then pay you back – it also leaves you out of pocket; sometimes for months.
It’s important that you set out your terms and conditions in the contract, complete with a description of what happens if a payment is overdue (late fees or interest, for instance). Accounting software and even inventory management tools can automatically send invoices and alert you when they’re overdue.
Having a system in place that allows you to quickly identify late payments and chase them up will help improve your cash flow significantly, as it can become harder to get your money the longer you leave it.
Invoice financeResearch from accounting software company Sage reveals that around two-thirds of small businesses in the UK have to wait more than 60 days to receive payment. It’s clear to see how this is a significant drag on their cash flow; it can cripple your plans for growth and force you to operate your business day-to-day rather than focus on long-term goals.
Invoice financing can solve this problem, giving you a steady income regardless of how long it takes your clients to pay. You essentially sell your accounts receivable to your chosen invoice finance company, who pays you most of the cost of the invoice upfront. When the invoice is paid, the company pays you the remainder, minus their fees.
This way you can turn invoices into instant cash flow; a significant advantage that is often worth sacrificing a little of the invoice’s value for.
Inventory management toolsOne key issue that can restrict your cash flow is having too much cash tied up in inventory. You don’t want to essentially be leaving money sat in a warehouse, but you also don’t want to be understocked and lose customers. Striking the right balance is crucial.
Inventory management software helps you to do this by giving you an accurate breakdown of where products are in your system, and where they need to go. From ordering raw materials to receiving cash from sales and everything in between, inventory management software reduces storage costs, helps you shift products in a timely fashion and create more accurate cash flow forecasts.
FX hedgingIf you’re dealing with overseas suppliers or customers, currency market volatility could be taking a chunk out of your profits or inflating your costs. Businesses who aren’t taking steps to mitigate the risk of their foreign currency exposure are always going to have cash flow headaches.
It’s a shame, because hedging against exchange rate volatility doesn’t have to be complicated. Take a forward contract; the most popular hedging tool used by businesses. This is an agreement between your business and Currencies Direct to make a transfer at a certain time (or during a specific time frame) and for a certain amount up to a year in the future using the exchange rate at the time the contract is taken out.
This way you can fix a favourable exchange rate for use up to 12 months, allowing you to know exactly how much you’ll need to pay to send money overseas or how much you’ll receive when repatriating profits. This clearly makes a significant difference to your cash flow visibility.
Accounting toolsHaving the right accounting software can make all the difference. You want to be able to accurately track and analyse all your business in-goings and outgoings, but on top of this you want to know what the future holds.
Having all the information about past and current expenditure and revenue, presented in an easily understandable and sortable way, makes forecasting so much simpler. It’s therefore worth considering upgrading your accounting process to make the most of the software and systems on offer.
Say goodbye to cash flow concerns
There will always be some room for error in a cash flow forecast, but you can make that window much smaller by improving the way you monitor and manage your finances. With these five types of financial products, you can reduce the strain on your business from weak cash flow, have greater confidence in your ability to pay employees and suppliers, and give yourself room to grow.