Healthy cashflow is one of the most fundamental requirements of a successful business. It optimises efficiency, boosts profits and enables you to re-invest capital to expand your enterprise.
Poor cashflow on the other hand can result in not having enough money to pay salaries, purchase the supplies needed to run your business efficiently or pay your taxes. It can also cost you in bank charges for having overdrawn accounts or having to get finance to purchase on credit and can adversely affect your credit rating.
So how can businesses optimise their cashflow management? We share some of the most common mistakes businesses make and how you can avoid them.
Common Cashflow Management Mistakes
- Inadequate terms and conditions of sale
Not having professionally drafted terms and conditions of sale that are up-to-date and customised to fulfil the needs of your business, can cost you dearly. Many businesses fail to realise that terms and conditions of sale are not a one-size-fits-all commodity and must be careful drafted for each business’s transactions to secure as much legal protection as possible.
Avoid this trap by: having a lawyer create a customised terms and conditions document for you which maximises your legal rights. Your terms and conditions should also be periodically reviewed by a lawyer as your business grows to ensure they still reflect current law and address all your businesses needs.
- Failure to provide terms and conditions at the right time
Having the most watertight terms and conditions can all come to naught if you fail to make the customer aware of them at the appropriate time. In order for terms and conditions to form part of your contract and be binding on the customer, they must be provided with a copy before they accept your quote or before you accept their order.
Avoid this trap by: always providing a copy of your terms and conditions with every quote or tender and state on your quote that it is subject to those terms and conditions.
- Not knowing which entity is responsible for payment
Knowing who your debtor is, is key to enforcing the debt. Often the person with whom you communicate when forming the contract is not the owner of the business or the person who will otherwise be paying the invoice.
Avoid this trap by: always ensuring you obtain the full name and contact details of the individual, business or company to whom your invoice should be addressed at the time of contract formation so that you know who to pursue for your debt if required.
- Not being realistic about the costs of cashflow management
Many business fail to consider the full extent of what they are spending on cashflow management. Time spent chasing payments could often be more productively spent in income earning activities.
Avoid this trap by: considering how much your time is worth in dollars and whether you can afford to be spending that time chasing creditors. Outsourcing your cashflow management to professionals who are able to illicit fuller and faster payment of overdue accounts may be a more efficient, cost effective and stress free option.
Whether your business is large or small, greater efficiency and profits are easily achieved through well managed cashflow. If you would like more advice on how to improve your cashflow contact one of our legal professionals now.