Five tips for keeping on top of your cashflow

Cashflow is the lifeblood of businesses, especially so for SMEs. A recent survey by Sage Ireland shows that almost 60% of businesses check their cashflow position on a daily basis – and 85% do so weekly. Businesses are now keener than ever to ensure that they are in a strong cash position to invest while the market is getting ready for explosive growth, so now is the time for them to get to grips with their cashflow. Simon Bell, Commercial Manager, Sage Ireland, gives five tips to help you keep on top of it…

Centralise your information

The Quest for ChangeInvest in some software if you don’t already have some. It may seem obvious and predictable coming from Sage, but the reality is that the more dispersed your information is – be it across spreadsheets, bank statements, email inboxes and letters – the less able you will be to understand what is due, overdue, in terms, outstanding, outside terms, what has been pursued, what hasn’t and also, what is outside of the normal behaviour for these customers. By keeping all of your information in one single accounts solution, you can quickly make an assessment of where there are problems (and more importantly forecast where problems may occur so you can plan appropriately).

Keep on the front foot with payments

It may seem counter-intuitive not to maximise your available payment terms, or indeed not to over-stretch them (our research shows that “the cheque is in the post” is still the most common excuse for a late payment in 29% of cases), but this really is a zero sum game. Ireland is a small business market, so if everyone were to adopt the same attitude no one would get paid on time and businesses are then put at risk. From a process perspective, it also allows you to focus your resources on the debt chase elements later in the month. In certain European countries, the application of penalty interest on late payments is not only the norm conceptually; it is also uniformly enforced – worth bearing in mind if you have suppliers in other markets.

Understand the full extent of your costs/outgoings

In the realms of credit control, debt chase and cashflow management, it is very easy to focus on customer and supplier payments, but your biggest outgoing as a business is probably your payroll.  From speaking to our payroll customers, we know that over 84% of employees are paid electronically, and this could quite conceivably be your biggest outgoing as a business in terms of costs, especially when you factor in PAYE, PRSI, USC, Pension Deductions and Local Property Tax deductions etc.  Making sure that your payroll costs are accurately accounted for will ensure that you have the clearest possible picture of your financial affairs.

Move to e-Payments

Aside from being significantly more cost effective than using cheques (we estimate the cost to a business of issuing and accepting 5-6 cheques per week can be up to €5,000 per annum), electronic payments have a much quicker turnaround time and are more secure. Using e-Payments can enable you to get a really sharp view on your current cash position, rather than having to make manual adjustments based on cheques that are waiting to clear. Although changing to make more e-Payments out of your business is probably easier than changing your customers’ processes to pay you electronically, there are certain measures that can be undertaken to encourage your customers to use e-Payments. Issuing your invoices electronically can stop your invoice landing in the “to do” pile of paper. Offering your customers the choice to pay you via card / Paypal etc. and making sure that your BIC and IBAN are included on all invoices so that customers have the details that they need to pay you can also help. Lastly, your customers are already moving to ePayments in huge numbers. The Irish Payment Services Organisation’s (IPSO) annual report, published a few weeks ago, shows not only a 10% decrease in cheque usage every year for the last decade, but also a 400% increase in the volume of debit card usage in the last 4 years. Your customers are demanding e-Payments, maybe it’s time that you did too?

Be aware of legislation

Over the next couple of years, new regulations and legislation will come into operation. In the UK, Automatic Enrolment of employees into pension schemes is currently being rolled out to all businesses for example, meaning Irish businesses with employees in the UK will be affected.  For many, this will mean an additional cost which will need to be planned for. While similar pension legislation is on the cards for Ireland in the coming years, the big ticket legislation item on the horizon for us is e-Day and the National Payments Plan (NPP), run by the Central Bank of Ireland. e-Day is one of five initiatives in the NPP, and aims to reduce cheque usage in the economy. From the 19th of September 2014, all central government departments, local authorities and State agencies will no longer issue or accept business cheques. This will have a significant impact for businesses, first because electronic payments will clear much more quickly than a cheque, and second, because these types of payments are likely to involve substantial outgoings for business (think VAT returns, Commercial Rates etc.).

Simon Bell

Proposition Manager at Sage

Simon Bell is Commercial Product Manager for the Startup & Small Business Segment in Ireland at Sage UK & Ireland. Simon’s focus is on the delivery of the commercial strategy of the startup & small business segment in the various channels that Sage operates. Simon joined Sage in 2011 after 7 years in the mobile operator and technology space. Simon has a BA in European Business & French from DCU & Reims Management School, an MBS from the Michael Smurfit Graduate School of Business, UCD and a Post Graduate Certificate in Digital Marketing from DCU.