Finance & The Importance of Getting Your Money In On Time
Let’s take a quick check in and talk about cash flow, specifically, the importance of getting your money in on time.
I was working with a client today, well-established, with solid governance and controls in place, but, even then, there’s always room for improvement.
A company can feel like it’s dialed in, but the truth is, there are always marginal gains to be made. Let me show you how.
Here’s the scenario: This particular client has three main types of funding in place:
- Cash reserves — Used as the primary source of working capital.
- Overdraft — A safety net during peak periods.
- Invoice financing — Used as a last resort when needed to accelerate cash flow.
Now, while it's not ideal to rely on all your cash reserves or go straight into overdraft mode, the reality is that these measures are necessary when managing business liquidity.
The key is finding the right balance.
Getting The Right Balance
We recently conducted an audit of their financials, and here's what we found:
The business was taking between 21 to 30 days to issue invoices, and then offering varying credit terms, 30, 45, or even 60 days to customers.
The result? Their cash flow was severely delayed.
This delayed invoicing process, combined with long credit terms, was creating a significant strain on their overdraft and invoice financing. For those unfamiliar with invoice financing, it’s a practice where you essentially sell your invoices to a lender in exchange for faster payment, but it comes at a cost.
That’s where the issue lies.
In simple terms, the balance wasn’t right. The company was invoicing late, which meant they weren’t getting paid for 60-120 days, forcing them to rely on expensive invoice financing (sometimes at rates of 12%-20% per annum).
So, despite making £300,000 in sales last month, they were left wondering, Why isn’t that money showing up in the bank?
It’s not that they weren’t generating revenue, it’s that the timing of their cash inflows was all wrong.
Take Action: Improve Your Cash Flow
Here's a simple exercise for you: Review your invoicing process.
How quickly are you getting invoices out the door?
Are your credit terms making the situation worse?
Look, I get it, chasing clients for money is uncomfortable. But you can't afford to be complacent when it comes to your cash flow. Marginal gains in finance can make a big difference, and here's how you can start:
- Invoice Quickly: The faster you invoice, the sooner you get paid. If you're sitting on invoices, it's time to speed up the process.
- Review Credit Terms: Are your clients really deserving of extended credit terms? Tighten them where possible to accelerate cash flow.
- Reduce Borrowing Costs: If you're relying on overdrafts or invoice financing, how can you reduce that reliance? A simple strategy might be to increase the cash reserves to avoid borrowing altogether.
- Know Your Cash Flow: Understand the timing of your expenses and income. Track your peak invoices, salaries, taxes, and any other recurring costs. Identify when money is coming in, and when it's going out.
Get Your Finances In Order
I find it fascinating (and honestly, a little frustrating) how many businesses will avoid invoicing or chasing overdue payments, but then turn to expensive invoice financing or overdrafts to cover the shortfall.
If you can get your invoicing system dialed in, reduce the need for borrowing, and manage your cash flow proactively, you’ll be in a far better position. Sit down with your accountant, review your credit terms, and understand your borrowing costs.
The result? A more predictable cash flow, reduced finance charges, and a healthier balance sheet.
Final Thoughts
Take the time to map out your financial cycles—track your cash inflows and outflows from day 1 to day 31 of the month. The sooner you get this in order, the easier it will be to scale your business without constantly fighting cash flow issues.
It’s your money, don’t let inefficiencies rob you of it. Manage your cash flow, and it will pay off in the long run.
Always here to help you start, grow, and thrive. Let me know how I can support your next big move.
