Enforcing proper cash flow practices is a key component of any successful, profitable organisation. After all, even a minor financial mishap (e.g. a budgeting mistake, a late payment or inaccurate report) can quickly escalate to a major disaster without effective risk management strategies in place.
At a glance, failing to implement adequate cash flow controls can spiral into the following costly consequences:
- The loss of key business contracts
- An inability to pay suppliers or employees
- A lowered business credit score (read our article on improving / repairing credit scores)
- An inability to purchase updated inventory
- Reputational damages
- Bankruptcy or insolvency
Especially in the midst of emerging economic downturn and recent large-scale UK business insolvencies such as Carillion, it’s clear that no firm is immune to the risk of financial ruin.
Utilise this guidance to ensure adequate cash flow practices within your organisation and maintain a profitable business model:
- Establish a realistic budget — First, it’s vital to determine a proper budget for your business. This way, you will be able to better allocate your funds, make educated investments, monitor your credit score and detect financial flaws before they become severe.
- Be cautious with new contracts — Before signing any contracts with new customers or suppliers, do your research. Avoid working with any individual or organisation that lacks a healthy financial status.
- Ensure clear payment terms — When creating contracts with new customers or suppliers, establish clear payment terms—including when payments are due, what type of payment system is being used and how the debt collection process will operate.
- Provide staff training — Human error is a top cause of cash flow failings, according to financial experts. With this in mind, be sure to provide routine employee training on your organisation’s cash flow practices to reduce the risk of financial mistakes.
Above all, it’s crucial to make room for robust insurance cover in your company’s budget. Contact Verlingue today for further financial guidance and bespoke insurance solutions.
The content of this Profile is of general interest and is not intended to apply to specific circumstances. It does not purport to be a comprehensive analysis of all matters relevant to its subject matter. The content should not, therefore, be regarded as constituting legal advice and not be relied upon as such. In relation to any particular problem which they may have, readers are advised to seek specific advice. Further, the law may have changed since first publication and the reader is cautioned accordingly. © 2020 Zywave, Inc. All rights reserved.