Cash flow management doesn't have to be complicated as you grow or digitally transform. Yet, according to accounting software company, Xero, 28% of small business owners in the UK’s say managing cash flow is challenging. Technology has simplified how we manage both personal and business finance in so many ways. The key is knowing which ways you should prioritize in your business and which will help you achieve the best results.
For some great tips from expert CFOs on this and other topics, please check out our ebook on closing the year. Otherwise, here are our top five ways to manage cash flow better as we head into the new year:
- Get real-time visibility over spend
Make sure you use integrated cards and software in order to make any business payments. If your employees pay with cash and collect receipts to be totaled at month-end, you have no idea what's been spent in the past 30 days. The same goes for personal cards. If your employees pay by personal card, you can't know how much they've spent until they submit their expenses. And, you don't know when they'll submit their expenses either; it will often be later than you want.
If, however, you use company cards with supporting software, you can see every time someone spends. Whether they're using an individual company card or a team card, you can get real-time access to who is spending what and where. Both, your finance team and your budget owners can see the spend, assess it, and consider the next steps if issues arise with over or underspending.
Growing businesses have often experienced the pain points involved with a lack of spend visibility as they scaled. "Before switching to Payhawk, all our costs were running through one corporate card. This created a lot of chaos. There was no information on who created a transaction and to which department it belonged. Now, we can see every transaction in real-time," explained Paul Schwarzenholz, co-founder at Zenloop.
You can also use cash flow forecasting apps like Fluidly, Float, and Fathom to track, report, and forecast your cash flow in detail. These apps can work together with Payhawk to create a seamless experience when managing your cash flow.
It's not enough to simply have visibility over business spend. You need to put controls in place in order to manage your outgoing cash flow properly. It's great to empower employees to spend as they need to do their jobs efficiently and with agility, but it's imperative to keep some control over this. Your business can't achieve its objectives without balancing the money being spent and its subsequent ROI.
By partnering with a payment and expense management fintech like Payhawk, you can set spend policies and fully promote compliance without any additional effort from your employees. With Payhawk, compliance is built into the tool so that employees spend as they need and simply request funds if required. For finance managers and budget owners, it's simple too. Update your policies and rules on the Payhawk platform, and these will instantly be applied to individual or team cards. You can add recurring spend limits and ATM withdrawal caps as part of your policy too, and they'll be updated live and on the fly.
By achieving greater spend visibility, you can start looking for patterns in your company spend to make sensible budget decisions. For example, if you have a high monthly spend on agencies, it could be worth hiring some talented people to bring that spend internally instead. Or, if you're spending a lot of money on nights on the same accommodation near your head office to put up your international team, it could be time to negotiate a cheaper rate with that hotel.
Depending on your industry, there will be loads of opportunities to reduce your outgoing cash flow and cut costs. It may be that even the act of going cashless and digitizing your expense management alone creates an enormous physical saving.
"When buying parts from other companies in the sector, our branch managers would always reach for cash, and this would generate a massive amount of paperwork. Just a year ago, we used to transport our invoices through Germany with two of our trucks," said Sebastian Jarantowski, CFO at ATU.
- Pay and be paid at the right time
Consider when to pay your suppliers. Your business has probably worked hard to build relationships with suppliers over the years. These relationships are vital, and you don't want to jeopardize them. However, paying too quickly can leave less cash in your account, which may have a knock-on effect on other bills you need to pay.
Of course, you should pay your supplier promptly, but it should be when it's best for you both. Take the time to analyze your current cash flow patterns to figure out when you should pay.
Similarly, be sure to invoice your clients as soon as you can. As the sooner you invoice, the sooner you'll be paid. Xero found that small businesses in the UK wait an average of 39 days for an invoice to be paid. Some of your clients will have extended payment terms too, so again, it's always a juggle to assess who will be paying and when to ensure you have a healthy cash flow.
Keep your accounting as simple as your spend. Make sure your payment and expensing software can directly integrate with your accounting systems to save the time and stress of trying to pull together information from conflicting systems.
Many of the financial tools you use will automate what used to be a manual task. But to make these automations feel really powerful, they should be connected: That way, you can reduce human error and any risk of fraud.
"The landscape of finance solutions is enormous. Most focus on a single area, e.g. expensing, payments, or invoice management, and are totally disconnected from each other. With Payhawk, we have an all-in-one solution that covers all areas backed by a super-strong product team," said Giancarlo Bruni, CFO at Heroes.
At Payhawk, we can connect to most accounting systems through our open APIs, and we have direct integrations with Quickbooks, Xero and more.
Book a demo to find out how payment and expense management can supercharge the way you manage cash flow in your business.