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The first cause of poor cashflow - Your cash lockup

Anna Stubbs • Apr 19, 2024

There’s a massive difference between profit and cashflow. Profit increases when you create an invoice for work you’ve done or goods you’ve sold; cash increases when you bank the money.

Your lockup equals the cash that isn’t in your bank account because it’s either in work in progress (you’ve done some work but you haven’t yet billed for it) or you have billed your customer but are waiting to be paid.

There are two key processes that need to be improved to reduce the cash that's stuck in your lockup. Within each of these two processes, there are countless strategies that can be put in place to put more cash in your bank account.

Billing
The earlier you invoice a customer, the faster you’ll get paid. How quickly after delivery of a product or service do you bill? Do you carry significant work in progress because your service spans several weeks or even months? If so, should you consider progress billing on a regular basis?

Collections
You’ve done the work, you’ve billed your customer, now it’s time to get paid.

Do your customers sign off clear Terms of Trade before they do business with you for the first time and are there clear expectations as to when an account is due for payment? Is that 14 days after invoice? 7 days? Shorten up that timeframe and your cash lockup will go down significantly.

How easy do you make it for customers to pay? Your invoices and statements should contain a link to pay immediately online or at least state your bank account details and due date.

Do you provide multiple payment methods to customers? For example, direct debit and credit, credit card, Eftpos, debtor finance (where appropriate). Do you offer a small discount for prompt payment? Customers love discounts.

These are just some of the process changes you can consider to reduce cash lockup. There are dozens more. Talk to us about our Cashflow & Profit Improvement Meeting. We’ll show you what’s possible - in cold hard cash of course!

Are loans to directors and employees tax free?

By Anna Stubbs • 14 May, 2024
If you’re a director then taking out a director's loan against the cash in your limited company might seem like a sensible thing to do. But the reality is that overdrawn loans to directors can lead to unintended tax consequences if they’re not properly managed.

HMRC is cracking down on additional income sources

By Anna Stubbs • 14 May, 2024
HM Revenue & Customs (HMRC) has an obligation to ensure we all pay the correct amount of tax. But with many UK taxpayers now earning money from various ‘side hustles’, like eBay, Etsy or Airbnb etc, there’s a growing need to widen the net and review all sources of income. HMRC’s new initiative aims to weed out taxpayers who aren’t fully declaring their income sources , with detailed investigations to prosecute any wrongdoing.  So, what does HMRC see as a ‘source of additional income’, and what could the impact be on your tax bill if you fall within the scope of HMRC’s new initiative?

The seventh cause of poor cashflow - Sales levels are too low

By Anna Stubbs • 19 Apr, 2024
It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing. This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers). There are five ways to improve your sales levels. These are: 1 . Increase customer retention . Stop your customers from defecting to the competition. 2 . Generate more leads . Gain more enquiries from people who are not yet customers. 3. Increase your sales conversion rate. Get more of your prospects to buy from you. 4. Increase transaction frequency. Engage your customers to buy from you more often. 5. Increase transaction value. Help your customers to buy more products or services from you. There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason. What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients - both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change? The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences. Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.
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