Cash is the lifeblood of every business, so it's important to keep a clear picture of your future cash flow projections.

Each new year presents an opportunity to investigate your cash flow and initiate strategies to help ensure the ongoing viability of your business and its future profitability.

It is also a good time to examine the steps your business might take to help decrease late payments from debtors so cash isn't leaving your accounts before it should.

Put in place long-term forecasting

Understanding your cash flow cycle in advance is essential, says Nicholas Guest, a partner with accounting firm HLB Mann Judd.

“Prepare a 12- to 18-month financial plan to reflect the business' longer term financial, strategic and operational plans," recommends Guest.

He advises updating the plan monthly or quarterly to encompass any changes in the plan to ensure future commitments to people, stock and capital are in line with the direction of the business.

“This ensures short term decisions align with longer term goals and strategies," he says.

Understand the cash cycle

Once you have your plan in place, ensure the business understands its trade conversion period; that is, the time it takes to convert activities to cash.

“This includes the period between when you buy supplies and need to pay for them, as well as the time between making a sale to collecting funds for it. At this point, explore whether the business has sufficient funding and working capital to manage its cash cycles," Guest adds.

Is your debtor information accurate?

Cash flow management often starts with having the correct information in place about your customers prior to supplying credit. This can involve collecting a range of data about prospective and existing customers.

“Understand who you are working with – is it a business, a company or a sole trader? When it comes to collecting your accounts there's no point asking for money from a company that has ceased trading. Not having the correct information is time wasting and can cost money when it's time to collect your account via legal channels," says Sonia Ferlauto, Director, ACS Debt Collection.

Have you locked in your terms of trade?

Ferlauto advises to outline the appropriate terms and conditions and collect signed documentation from debtors agreeing to the terms of trade. She recommends using a simple, 10-step form explaining the business's expectations so customers understand requirements. This may include information about when payments are due, any penalties for late payment, as well as an outline of confidentiality expectations.

Offering quick options for making payment

Creating a better payment experience for customers is one of the factors that Feralto says may encourage your customers to do business with you again. 

“Use appropriate software to manage your debtors so you can track and manage outstanding amounts at all times," she advises, adding that staying on top of cash flow is crucial to avoid the cost of an overdraft.Asking for a deposits or part payments

Deposits and part-payments are one of the tools some businesses utilise to help keep the cash flows positive. This may also help to ensure the customer is committed to completing the work.

Using technology to manage invoices

One approach to help ensure you are paid on time may be to issue reminders when an invoice is due.

“Use accounting technology to issue reminders on the day the invoice is due, and then follow up after seven, 14 and 21 days. Remember to also pick up the phone when the invoice is overdue. People will often happily ignore an email but are less inclined to ignore a human," Liston advises.

Use projections in the early stages.

Many business owners may still be developing an understanding of the ins and outs of cash flow. But as your business grows, these skills will tend to grow and develop for many people.
Says Liston: “This is when it becomes crucial to use financial modelling to predict future cash flows and get a far more accurate picture of your cash position. A good financial forecast can assist with decisions around when to take on staff, when to push hard for more sales, and when you may need an overdraft or a loan."

Further Reading: Four tips for managing cash-flow during the holiday period