Cash flow management

In relation to running a business in the current economic climate one of the biggest issues I see is mismanagement of cash-flow. One thing I made absolutely sure with Fluidata right from the very beginning was to be strict with aged debtors and suspend or terminate contracts for any clients who didn’t pay on time. Why when you supply a service to a customer should they not pay you in full and on time?

I have seen lots of competing and other businesses go to the wall because of cash flow issues and now it is even more important to make sure your company has a handle on such debts. By good vetting of any new potential client using credit checks Fluidata has managed to limit any bad debts and by being strict with clients any potential problem can be quickly identified and hence the risk limited.

One of the steps companies can take to immediately improve their cash position is to factor their accounts with their bank. This agreement usually means that the bank takes the majority of the risk on any debts and is brilliant for new companies or companies who need to provide clients with credit limits. The bank provides the necessary credit limit for each customer and then pays their client in a few days of any order being made with 80% of the sale value. Once the client pays the debt the bank pay the rest minus their commission (I believe in the region of 3 – 6% depending on the risk and quantities involved). So as long as the business is making 20% GP it shouldn’t loose out if a client goes to the wall.

I have seen factoring in place in a number of companies and especially in the IT market place where hardware can quickly run into the millions it can help companies grow without external investment as they can actually service the credit limits with their suppliers.

Once a company then gets to a certain size it can take this in house but the same principles need to apply – good analysis of any new client, discounts for quick payments by clients, up front payments for clients without credit limits and chasing up late payers if they fall outside terms. All sounds very obvious but surprising how many businesses don’t focus on this aspect which directly affects the growth and success of their company.


  • Sue Massey says:

    I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!

  • Tim Ramsey says:

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  • Geoff Morris says:

    Just to say, I’m sure I commented on another article you did on your blog, but I can’t find my comment anywhere. It may have been to your comment on “Reactive or Proactive?” although I may have been mistaken.

    I think you should do a comment about the day to day life at Fluidata in your blog, it would be really interesting to know more about the people that work there.

  • This is a hot topic as I keep running into articles on this sort of thing. Selling accounts receivables can help — although you get your invoices paid at a discount rate — at least you have the money in hand now. The WSJ offers a few more tips for managing cash flow in these economic times.

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