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By Hugh Wilson

4:58PM BST 02 Jun 2014

Imagine the worst

Managing cashflow means having enough money coming in to cover what you have to pay out. But getting the balance right can be tricky, because suppliers and customers have different priorities. “Remember that businesses often go bust because of a lack of cash, rather than a lack of orders or profits,” says business expert Roger Harrop, author ofStaying in the Helicopter (Sue Richardson Associates). Work out what a late or non-payment would mean for your business, and have a backup plan in place.

Make a plan

“It’s amazing how few businesses bother to create profit and cashflow forecasts, and they get themselves into trouble because they don’t have an organised approach,” says chartered accountant and business coach Michael Ogilvie. “Planning gives you the opportunity to ask the right questions of your business to avoid unnecessary costs, and to charge the right price,” he adds.

Be brutally honest

After you’ve made forecasts you might have to accept that cashflow problems aren’t always the fault of late paying customers. “Sometimes poor cashflow can mask something more fundamentally wrong – an unpopular product, flabby costs or under-performing sales team,” says Stephen Bence, chairman of Beauhurst, a company which tracks the performance of growing businesses: “If you see a problem, do something about it before it’s too late.”

Protect yourself against bad debt

At the very least, learn as much as you can about potential customers – are they credit worthy? – and work out whether you have the cash reserves, overdraft or credit facilities to cover a bad debt. Credit insurance can provide peace of mind.

Do your bit

Most customers will be happy to pay for good products or services. “Don’t give the customer any excuse not to pay,” says Harrop. Make sure orders are on time and complete.

Get paid promptly

Don’t let the glow of a significant sale or a lucrative new contract blind you from the need to ensure prompt payment. “Negotiate hard on payment terms and don’t give way easily,” says Harrop. “Try and get progress payments if you are in a longer cycle business and don’t accept ‘back to back’ (i.e. you get paid when the customer gets paid).” When you’re well established you also have some sway with suppliers. “Speak to suppliers and renegotiate terms. Pay less and pay slower,” says Ogilvie.

Incentivise early payment

“Try offering customers a small (one to two per cent) discount or free delivery, for early payment,” says Bence. “Such inducements build loyalty and they can give a real boost to cashflow in times of need.” At the same time, charge interest on late payments.

Choose your preferred method of payment carefully

Credit card payments can be quite time consuming and expensive for small businesses, says Stuart Hibbert, CEO of icomplete.com, an SME that provides CRM, e-marketing and telephony web-based services to other SMEs. “Encourage faster payments – so the money is in your account within a few hours.”

Practice what you preach

You expect to be paid in a timely manner, so make sure your suppliers receive timely payment from you, within the terms of your contract. It’s the right thing to do, but it also makes sound business sense. “More than anything, business is about relationships and so when times are tough suppliers are more likely to be supportive if you have traditionally paid invoices on time or referred business their way,” says Bence.

Think differently

If cash is tight, why not lease assets rather than buy outright? Or consider alternative methods of finance. “Traditional finance tools are often difficult to arrange, costly to administer and, importantly, usually tie up or require pledges of company assets,” says Toby Lanyon, chief operating officer of TradeRiver Finance. Alternative finance, from companies such as TradeRiver, can be used to finance trade with multiple suppliers without security from either party