How to anticipate cash flow?

Anticipating cash flow is the key to good business management. A healthy and controlled cash flow is the beginning of any company's success. Cash flow problems can occur for several reasons: 

• Payment terms granted to customers 
• Seasonality leading to a slowdown in activity 
• Late payments are too frequent 
• Investments or an increase in activity leading to additional expenditure 
• Lack of anticipation of future needs 

By anticipating your cash flow, you ensure that you can anticipate and find quick and reliable solutions to these potential problems. To anticipate your cash flow, you can opt for the Revenue Based Financing solution, which is more flexible and faster than bank financing or fund raising. It allows you to generate immediate cash flow based on future revenues in less than 48 hours. Our mission at Karmen is to help digital companies optimize their cash flow. Here are our top 5 best practices to implement today in your company to anticipate your cash flow as we approach 2023.

Anticipate cash flow with a cash flow forecast 

One of the first steps in anticipating your cash flow is to develop a cash flow forecast. 

This is a table that shows all your company's financial movements month by month: your cash receipts (cash inflows) and cash outflows (cash outflows). This allows you to measure and forecast the cash balance on a monthly basis. 

Note that your cash flow plan shows the actual operating expenses paid out and the actual turnover received for each month. You should therefore consider the time taken to make your cash flow forecast. Don't forget that the plan also includes VAT received and deductible. Finally, it takes into account all flows including the payment of taxes and social security contributions.

It is by anticipating your cash flows that you will limit the risks and problems of cash flow. Therefore, draw up a cash flow forecast each year for 6 months to 1 year and update it according to changes in your business.

Monitoring it is not always easy. We therefore advise you to choose and set up key performance indicators and financial reporting. For example, you can try to forecast your turnover according to your lead conversion ratio or your average contracts per sector of activity. This allows you to visualise possible cash flow needs. To find out more, read our article on the 10 North star metrics of SaaS. 

Our advice: Take into account the seasonality of your sector of activity to anticipate the months when turnover will be lacking. 

Bring in cash as soon as possible to anticipate cash flow

Once your cash flow plan has been drawn up, you can think about your strategies for anticipating your cash flows. Indeed, one of the golden rules of cash flow accounting is to minimise your payment terms to your customers and to negotiate as much as possible your payment terms to your suppliers.

Anticipate cash flow by reducing payment delays 

There are a number of tips for reducing payment delays and anticipating cash flow: 

• Invoice as early as possible: instead of invoicing at the end of the month, early invoicing can save you precious days of cash flow and avoid a rush at the end of the month in the accounts;
• Avoid non-payment and late payment by imposing a due date on your invoices for all contracts;
• Set upan invoice tracking and automatic dunningservice to avoid delays and optimize your accounting time;
• Harmonise your payment deadlines and general terms and conditions of saleas much as possible . The fewer exceptions you have in your various contracts, the easier it will be for you to keep track of your invoices;
• Ask for advance payments when ordering in order to avoid non-payment;
• Encourage cash payment for customers who are deemed to be of poor or no credit standing. 

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Why is this necessary? 

The time it takes to collect and disburse funds has an impact on your working capital requirements. It is therefore important to monitor and anticipate this. If your WCR is higher than your actual working capital, we advise you to monitor it using the net cash flow calculation to anticipate any cash flow problems that could be detrimental to your business. 

A second way to bring in cash quickly is to sell your receivables for a commission to a factoring company. Factoring allows your company, if it is in cash flow difficulties, to transfer some or all of your trade receivables to a "factor", an organisation specialising in debt collection. The factor is responsible for obtaining payment of these receivables, managing the registration of invoices, dunning debtors and handling collections and disputes in the event of non-payment. The term "assignment of receivables" is used when the factor is a bank. 

Anticipate cash receipts and disbursements with a cash account

Continuing with this, maintaining a good relationship with your suppliers can help you free up more cash. As well as negotiating payment terms with your customers, you can also negotiate payment terms with your main suppliers to delay your cash outflow. 

However, it is important to bear in mind that there are legal limits on payment terms in France. You cannot exceed 60 calendar days (or 45 days end of month) from the date of issue of the invoice. 

By keeping track of your cash flow on a daily basis, you can anticipate your cash flows. 

Good practices to be put in place

• Anticipate the payment of your employees' and manager's social security contributions, in particular your RSI regularisations;
• Monthlyise all your "non-bill" flows (energy, rent, salaries, etc.) in order to make things clearer and simpler for you. 

Negotiate an overdraft with the bank to anticipate cash flow

To anticipate any cash flow problems, you can also negotiate an overdraft with your bank. While this obviously requires a relationship of trust with your banker, it can save you from major cash flow problems. In addition to an overdraft facility, the bank may also grant you an overdraft facility. These terms should be negotiated well before the first difficulties arise, otherwise it will be too late.

One of the first things to negotiate with your banker is therefore an authorised overdraft line without charges. The principle is to negotiate an amount defined according to the activity and the WCR below which the bank does not charge any fees or apply any agio. 

The other point to negotiate is therefore the rate of agios and the possible amount of charges associated with the unauthorised overdraft. Knowing that the whole cannot legally exceed the usury rate.

Anticipate cash flow by finding credit quickly

There are other cash flow financing solutions to help you anticipate and solve your potential cash flow problems. One of them is to find a loan quickly to give you a little boost and improve your cash flow.

Obtaining credit from the bank 

A little more difficult to negotiate, but just as life-saving, you can negotiate a loan from your bank. This is where the cash flow forecast comes into play. The more solidly you build a cash flow forecast, the more likely banks will be to give you a bank loan. This shows them your ability to repay your debts without any problems. 

If your business experiences seasonal fluctuations in activity, you can use a campaign credit. The campaign loan is a loan for companies whose activity is seasonal. It allows you to meet major cash flow requirements over several months. Repayment is made as and when sales are made during the period of high activity. 

Use participatory funding 

You can also use participatory financing, especially in the area of lending(crowdlending). This allows you to borrow money quickly from the general public to finance your projects. 

Using RBF

Another way, and not the least for digital companies, is revenue-based financing: RBF - Revenue Based Financing. 

At Karmen, we finance your growth without dilution. We offer instant growth capital to develop your business at your own pace. With RBF, you get fast and transparent funding from your revenues. 

Karmen allows digital companies to finance their growth in a non-dilutive way and very quickly.

At Karmen, the investor has no direct ownership in the business and does not require fixed payments. Payments will be based on the company's revenue . Karmen uses a tool to anticipate the future revenues of a business.

In concrete terms, if your income decreases during a month, the royalties to Karmen will be reduced proportionally . Conversely, if the company's revenues increase drastically during a month, the royalties will increase simultaneously.

Karmen offers an alternative to fundraising that allows more companies to finance themselves.

Indeed, Karmen does not have any particular requirement on a business sector or an ultra-tech product as a venture capital fund may have.

Getting a quick loan is the essence of Karmen's offer, as a business can receive cash in less than 48 hours. 

Good cash management is not only about having a balanced balance sheet. It also means being able to anticipate cash flow: from cash on hand or in the bank to cover operating expenses to cash available to deal with any unforeseen event. 

Anticipating cash flow means having the financial leeway to respond and carry out strategic actions. 

Don't hesitate to implement these practices in your company today. If you need a credit quickly, don't hesitate to contact us. We will be happy to advise you.