What's the key to sound cash flow management?

What's the key to sound cash flow management?Accountant and credit control expert Martin Bown on how to keep your cash flow healthy

"Serious cash flow problems cause the death of businesses, even those with healthy sales and plenty of customers," warns Huddersfield-based accountant Martin Bown. As owner of My Management Accountant and My Credit Control, he helps his SME clients to ensure their cash flow remains healthy.

Bown says common causes of cash flow problems include failure to maximise sales, slim margins, being too generous with credit and weak cost management. "Often businesses waste money buying things they don't need or can't sell. And some don't negotiate firmly enough with suppliers, whom they stay with rather than finding better value."


"Many businesses aren't very good at credit control." warns Bown. "Some don't have systems that tell them when payment is overdue. Others fall short when chasing payment - often because they fear losing customers. Time's another issue. Typically, micro business owners have limited time for cost and credit control, because they have to juggle so many other tasks, and many can't afford to take someone on to do it for them. But, if cash doesn't enter your business when you need it to, soon you may not have a business."

Bown says the importance of successful cash flow management can't be over-emphasised. "Cash really is king - it's the lifeblood of your business. You must know how much cash you have in the bank, how much you're owed and how much you owe. Working with cash flow forecasts is an absolute must. They allow you to compare your likely outgoings and sales to identify times in the future when you risk running out of cash. If so, you can act now to prevent a serious problem," he reveals.

Profit and costs

Maximising your sales and margins is crucial, he adds. "Knowledge of your customers and competitors will tell you how much you can charge. Add too much margin and your customers will go elsewhere. But if your margin isn't enough, reducing your costs is the only option."

"Cost control is a must," he stresses. "Uncontrolled spending will damage your cash flow, and businesses waste money in all areas, from premises, insurance and energy costs through wages, stock and materials to marketing and professional services - you name it.

"It's possible to make savings in most areas - often you just need to explore your options. Even just asking your current suppliers how you can get better value can provide cost savings. You should assess your costs regularly, at least every quarter, if not every month. There should be a sound business reason for all costs."

Credit matters

Bown recommends asking your suppliers for as favourable credit terms as possible. "The longer cash stays in your account, the better - although you might get cheaper prices for prompt payment. Some business owners struggle with negotiating, it doesn't come naturally to everyone. But if you don't ask - you won't get," he smiles.

New customers should be credit-checked before you grant them credit, he advises. "Ask for credit references from their other suppliers. Ask for cash on delivery or part payment until you've established a closer relationship. If you do grant credit, don't be too generous, and make sure your customer explicitly agrees to your terms. Don't delay when invoicing, because it will affect your cash flow.

"Shortly before an invoice is due for payment, send the customer a polite reminder. If you don't receive payment when due, call the customer to request immediate payment. Be polite and professional, but firm, too. You should never be reluctant to ask for money that your business is owed."

Martin's key cash flow tips

  • "Continually review your costs - you must control your spending."
  • "Seek best value from your suppliers. Remain open to other options."
  • "Work with cash flow forecasts - they can keep you out of trouble."
  • "Credit check new customers. Don't grant them too much credit."
  • "Get your invoices out on time and ask for payment as soon as due."
  • "If credit control isn't your thing - outsource it."
  • "If you're constantly experiencing cash flow problems, take fundamental action. Seek professional support and advice."

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