Maintaining a healthy operating cash flow is crucial for any business. Here are six strategies that are often overlooked but can significantly impact your working capital:

1.Review Credit Terms Regularly

Ensure credit terms align with your business needs rather than simply following industry norms. As your business grows, relationships strengthen, and reputation builds, you gain better negotiating power and the opportunity to attract new customers.

Customer credit terms:

• Analyse your customer base to identify those willing to pay earlier.

• Assess customer behaviour to determine if early payment discounts are beneficial.

• Consider offering bespoke payment terms to win new clients.

For instance, a business had been offering 30-day credit terms to all its customers, but after rigorous analysis, it was discovered that some larger customers were happy to pay earlier. Moreover, offering extended 45-60-day terms could attract new clients. This approach significantly improved cash inflow and expanded the customer base.

Supplier payment terms:

• Do not make payments earlier than you are contractually obliged to.

• Negotiate extended payment terms or staged payments.

• Use business credit cards for interest-free periods.

For example, a healthcare business initially had a blanket 30-day payment policy for all suppliers. This proved impractical as GPs required immediate payment, smaller suppliers needed 14-day terms, and others were happy to extend to 60-day terms. The revision of this policy eliminated disputes between operations and finance teams, improved cash flow, and enhanced service quality.

2. Proactive Cash Collection

• Regular reconciliation of customer statements.

• Allocate payments promptly to prevent customer misunderstandings.

• Use phone calls to follow up on emails or post for overdue balances. Helps a lot! Often emails or post are not enough.

• Issue timely reminders for upcoming payments to encourage early settlement.

• Streamline payment processes by sharing direct links or encouraging setting up direct debit.

• Engage sales team on complicated accounts to avoid damaging customer relationships.

3. Timely and advance invoicing

• Implement milestone-based invoicing or request 30-50% advance payments for project-based work.

• Scrutinise high accrued income relative to debtors and sales volumes; this may indicate substantial delays in invoice issuance.

• Adopt automated invoicing systems where feasible.

4. Comprehensive Cost Review: Enhancing EBITDA and Cash Flow

• Justify all expenses and eliminate redundant subscriptions.

• Consider leasing alternatives to buying options for office space, equipment, and IT hardware.

• Engage cross-departmental collaboration in cost-saving initiatives.

• Evaluate marketing expenditure for effectiveness.

• Optimise inventory management with just-in-time production where feasible.

• Consolidate company-wide systems to avoid duplication (e.g. project management tools).

• Maximise system utilisation to boost staff productivity and reduce labour costs.

5. Forecast, Monitor and Prioritise

• Plan for a 3-6 month positive cash flow buffer, depending on your industry. Secure essential expenses such as payroll, rent, and critical supplies.

• Develop strategies to navigate through lean periods.

• Focus on managing priorities to avoid cash shortages. Engage other departments to better align with business needs.

• Implement regular forecast monitoring to keep staff accountable, maintain cash visibility and prevent cash depletion. Staff might identify cash flow improvements along the way.

For instance, during lean periods, it becomes crucial to focus on key priorities, seeking input from various departments to align with essential business needs.

6. Financing Options

• Credit cards: Capitalise on interest-free periods; otherwise, interest rate is high. Hence, the best suited for short-term use only.

• Bank overdrafts, line of credits or loans. These typically require an established credit history.

• Finance leasing: An effective alternative for equipment purchase.

• Invoice financing: Allows businesses to borrow against customer debts. This method resembles a line of credit or loan, as you borrow against your accounts receivable. Particularly suitable for smaller businesses.

• Factoring: Involves selling your accounts receivable, akin to an advance payment. Generally more appropriate for larger corporations with substantial balances and cross-border invoicing.

• Inter-company financing: Used to address cash shortfalls in specific geographical locations. Note that certain jurisdictions may impose restrictions.

By implementing these strategies, businesses can significantly improve their operating cash flow and working capital position. Remember, small changes can lead to substantial improvements in your company's financial health.