However much demand there is for your product and however strong your brand, there’s one thing that trips up several businesses, especially in their first few years: cash flow.
According to a study by the Atradius Group, over 30% of the Asian companies they polled said maintaining a healthy cash flow is their top priority.
The issue is particularly pertinent in Singapore, where 36.8% of businesses see cash flow as their biggest challenge. The World Bank may have named Singapore the best place to do business in the world, but it’s also an expensive city.
Here are some ways to help you manage your cash flow and stay in the black, whether you’re looking to expand or just starting up…
1. Manage your risk
Your business could fail if you can’t pay your debts on time, even if you’re making a profit.
Minimise your risk by never relying on one big client in case they leave you and set realistic goals for how much cash you want to have in the bank each month. Negotiate payment terms with your suppliers to give yourself more breathing room or try to reduce the payment term with your customers if you can. Some businesses even offer discounts to customers who pay early to encourage prompt payment.
If you don’t have an accountant on hand, make sure that someone in the business is keeping an eye on your cash flow so they can flag up any potential issues before they escalate.
2. Keep costs down
76% of chief financial officers in Singapore think that the rising cost of business is the biggest contributor to their cash flow woes. It may be tempting to crack open the champagne, hire more staff or open a new office when business is booming, but invest cautiously to avoid veering into the red.
Business rental rates are particularly high in Singapore (especially in the prized Central Business District. Companies who want to have a base there are choosing to rent a virtual office in Singapore, giving them the benefits of a permanent office without the unaffordable rates. That way you’ll be able to scale your business in a more measured way.
Other companies are using teleconferencing technology to hold meetings remotely rather than paying for expensive travel for speculative sales meetings.
Negotiate discounts wherever you can, make sure you’re not locked into a contract with a supplier you can’t get out of and look for clever ways to cut costs on non-essentials.
3. Ask for payment promptly
Stay on top of the work you’re delivering and send your invoice to your customer as soon as you’ve finished a project. It seems obvious, but many companies wait for weeks to get round to invoicing their customers, which can cause a problem when your suppliers come knocking.
4. Make payment a breeze
Not getting paid promptly is one of the biggest causes of cash flow problems. And according to the Atradius study, complex payment systems are one of the main reasons foreign invoices get paid so late.
Make sure your customers can pay you online and by direct debit, and refuse cheques which can take days to clear.
5. Pester bad debtors
If your customer hasn’t paid you on time, you should remind them payment is due as soon as possible. Most decent accountancy software packages are designed to flag up late invoices to help you keep on top of things.
If your reminders don’t do the trick, you may want to consider taking legal action to get the money back.
6. Fixed payment packages
It’s stressful trying to forecast how much work you’ll be able to get in the next few months and how much you’ll have to spend. Invest too much and you may run into cash flow problems if demand slows.
Take as much guesswork out of your business by encouraging customers to sign up to a retainer so they pay you a fixed amount for a given period. You’ll know exactly what’s coming in, and when.
7. Speak to your bank
Keep the lines of communication between you and your bank manager open, and be honest and frank with them if you run into problems. If you’ve got good record, they may be willing to offer you a grace period or extend your overdraft allowance.