Cash flow is at the heart of a company's life. A lack of cash flow can jeopardize the survival of the business at any time. Here are six tips for managing your cash flow in 2023 !
What is cash flow?
A company, in order to generate cash, consumes money (suppliers, raw materials, etc.). However, there can be a time lag between when the money is invested (expenses) and when the revenue is received (sales). In B2B companies, sales are recorded on the date of the invoice, but payment may occur much later, which can create cash flow shortfalls.
Thus the role of the treasury is first of all to guarantee sufficient liquidity for the next financial deadlines and not to find itself in default of payment. But this role goes beyond that, because cash flow can also be a financial advantage for a company: to hedge against exchange rate risks, to optimize the profitability of available funds, to secure payments, etc.
Accurate budgeting for good cash management
It is necessary to have an overview of your expenses and receipts throughout the year. It is also important to plan their chronology over the whole year, or even over several periods depending on the type of business you have, taking into account payment and collection deadlines.
Have a dashboard
The best way to get a complete picture at all times is to set up a dashboard and monitor key indicators such as your turnover, margin rate, delinquency rate, number of sales, number of contacts initiated, length of sales cycle, etc.
The interest of this dashboard is multiple:
- It allows you toanticipate: you can see in advance the problems that could arise and thus adapt your activity to avoid being caught short.
- It allows you to project different scenarios: by modifying a few parameters of your cash flow statement you can use it as a decision-making tool!
How to set up a dashboard?
To set it up you will first need to map out your incoming cash flows as comprehensively as possible, listing in particular your incoming payments:
- Your customer invoices
- Your bank loans, fundraising, etc.
- Your subsidies and various aids
- Your capital increases (in the case of a new partner for example)
- Your possible VAT credits
Similarly, you should list all your disbursements:
- Your purchases and supplier debts
- Your salary payment
- Your interest payments (loans, overdrafts, etc.)
- Your rent and water/electricity bills
- Your subscriptions (internet, software, mobile, etc.)
- Your taxes (including VAT payable)
- Your communication and marketing budgets
- Your travel expenses
So, with your updated cash flow statement, you'll really have a handle on all the variables that can affect your business!
Manage your payments better
Although you set your own payment terms, customers often fail to pay on time, often because they simply forget or sometimes because of a cash flow problem on their side!
To get paid on time there are some good practices you can put in place:
Create clear and complete invoices
Fill in all the legal and compulsory information, your contact details, the VAT rate, discounts and other reductions, the details of the service and your bank details. All these elements will save you from having to cancel invoices with credit notes and having to start all over again.
Provide for a payment term
Provide for payment deadlines or even a due date with late payment penalties. While payment terms can change as you wish and depending on your business, the average term is 30 days.
Requesting advance payments and making progress invoices
This is all the more necessary if you are offering services over a long period. Asking for a deposit on your initial estimate will allow you to cover the costs incurred without having to dip into your cash flow and to secure the sale.
This deposit is generally 30% of the total priceand must be included in your initial estimate. You can also spread the payments over the duration of the service with several instalments by issuing progress invoices. This also allows your client to amortize his expenses without having to pay out a large sum at once.
Send invoices online and get paid online
This will allow better tracking of invoices (no way the invoice got lost in the mail!) and will simplify payment for your customer, who will only have to take out his credit card.
Follow documents and regulations
A large proportion of late payments are due to poor invoicing management. It is therefore important to send your invoices as soon as possible at the end of the service and to regularly monitor the status of client payments
Anticipating and boosting to better manage your cash flow
Sometimes you will have to deal with deadbeats or simply airheads.
A good way to avoid unpaid invoices is to set up simple automated dunning processes. Make sure you have a good overview of paid and overdue invoices at all times.
You can then schedule reminder emails or call your customers to understand the reason for the non-payment. There are also more coercive means of dealing with unpaid invoices (formal notice, registered letter with acknowledgement of receipt, etc.)
Managing your expenses
A good business owner is also able to keep control of his or her cash flow by controlling expenses. You should therefore systematically question major purchases and control your operating costs.
A good way to do this is to do an analysis of the accounts and check all the invoices thoroughly.
It also means controlling the expenses of its employees, which can be done in a few different ways:
- Set a budget by type of expenditure
- Impose a process for claiming expense reimbursements
- Centralise the receipt of receipts
- Centralise the monitoring of subscriptions (including software, mobile, etc.)
Integrate the cash flow plan into your business plan
When drawing up the business plan, the roadmap for your company over the coming months and years, it is very important to think about integrating your cash flow plan: a table of expected cash receipts and disbursements in the coming periods with a month-by-month view.
It is important to take into account the time it takes to pay invoices in order to have a good monthly view and thus check that the working capital requirement (WCR) remains negative at all times.
The rolling cash flow plan
Unlike the annual cash flow budget, which is a fixed forecast for the next 12 months, the rolling cash flow plan is updated in real time, by being connected to your financial and operational systems. A rolling cash flow plan allows you to monitor your forecasted cash balance on a day-to-day basis. This allows you to fine-tune the timing and amount of cash requirements, for example by using financing solutions such as Karmen.
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.
Karmen's objective is simple: to democratize Revenue Based Financing in France to accelerate the growth of digital companies. Karmen offers non-dilutive financing solutions, indexed to the turnover of companies operating in the subscription-based consumption sector. The Karmen platform allows any player to determine in less than 48 hours whether or not it is eligible for financing.
Are you eligible for the Karmen solution? To find out click here !