Cash Flow Clinic

Debtor days, the average time customers take to pay you, is the cash flow number most small firms never measure and most feel. Every extra week of debtor days is a week of your money sitting in someone else's account, usually funding a bank facility you are paying for. Five practical moves bring it down. 1. Invoice immediately, not at month end The payment clock starts when the invoice lands, not when the work finishes. Firms that batch invoices at month end add up to 30 free days to every job. Invoice on completion or on agreed milestones, and same-day invoicing alone typically shaves a week off debtor days. 2. Make the payment terms impossible to miss Terms buried in small print are terms nobody read. Put payment terms, due date, and bank details on the face of every invoice, and state them again in the engagement letter. 14 days stated clearly beats 30 days implied, and most B2B customers will simply pay to the stated date if it is visible. 3. Chase on a schedule, not on a...

  Every seasonal business knows the pattern: the busy quarter floods the account, the quiet quarter drains it, and the owner spends the quiet months wondering if this is the year the dip becomes a crisis. The difference between businesses that ride seasonality and businesses that are ridden by it is planning. Here is a simple quarterly dip planner. Map the pattern from history, not hope Pull twelve months of bank statements and mark the inflows and outflows by month. Most seasonal businesses are surprised twice: once by how predictable the pattern is, and once by how deep the dip really is once you include the fixed costs that do not dip (rent, salaries, loan repayments, insurance). Your dip is not "quiet months feel tight"; it is a number. Find the number. Build the dip reserve in the good quarter The rule is simple: the busy quarter funds the quiet quarter. Work out the total cash needed to cover the dip months, divide it by the good months, and that is your monthly transfe...

The debtor days problem: cutting 60 days down to 30   What debtor days really measure Debtor days tell you how long, on average, your customers take to pay you. The formula is simple: divide trade receivables by annual credit sales and multiply by 365. A business sitting at 60 debtor days is effectively giving every customer a two-month interest-free loan, funded from its own cash reserves. Bring that down to 30 days and you release a full month of sales back into the bank account. For a business turning over £1.2 million, that single improvement frees roughly £100,000 of working capital. No new borrowing, no new sales required. Measure it before you try to fix it Start with the headline number, then break it down. Segment debtor days by customer, by invoice size and by salesperson or account manager. The aged debtors report is your best friend here: a headline of 45 days can hide one large customer sitting at 90 while everyone else pays in 30. Track the number weekly, not month...

  Most small businesses chase overdue invoices the same way: a vague nudge, a long silence, then a frustrated phone call months later when the money really matters. By then the trail has gone cold, the contact has moved on, and the debt is twice as hard to collect. There is a better way, and it fits in three letters. The most effective credit control is not aggressive. It is systematic, escalating, and written. Here is the three-letter sequence that consistently gets UK invoices paid. Letter 1: The polite reminder, sent on day one Your first chase letter should go out the day after the invoice becomes overdue, not two weeks later. The tone is friendly and assumes the best: perhaps the invoice went astray, perhaps it is sitting in someone's approval queue. Include the invoice number, date, amount, and a copy of the invoice itself, because the single most common reason for non-payment is that the invoice never reached the person who pays. Subject lines matter here. "Copy inv...

Setting Credit Limits for New Customers Without Killing Sales Credit limits sit at the fault line between sales and finance. Set them too tight and you strangle growth; set them too loose and you fund your customers' cashflow problems with your own money. Here is a practical framework for setting credit limits on new customers that protects the business without killing sales.   Start with information, not instinct The most common way small businesses set credit limits is gut feel: the customer seems decent, the order is not huge, so give them 30 days and a reasonable limit. That works until it does not, and when it fails it fails badly, usually with one large customer who goes quiet. Before you set any limit, run a credit check: it is cheap and reveals payment history, county court judgments, and financial position. For larger exposures, look at the latest filed accounts and follow up trade references; most businesses skip this step, which is exactly why references carry sign...

  By John Thomas, Senior Accountant Every accountant has watched a profitable business run out of cash. Profit is an opinion, but cash is a fact, and the gap between the two catches out more small companies than any other single issue. The 13-week rolling cash forecast is the tool that closes that gap. Here is how to build one that actually works. Why 13 weeks Thirteen weeks is roughly a quarter: far enough ahead to see trouble coming, short enough that the numbers stay real. Annual cash forecasts are mostly fiction by month four. Thirteen weeks lines up with VAT quarters, typical supplier payment runs, and payroll cycles, so the forecast maps onto the rhythms your business already has. What goes in The forecast has three sections, and the golden rule is that it is about cash, not profit. Record every line on the date the money moves, not the date of the invoice. Opening cash is your actual bank balance on day one, across all accounts. This is the only line you cannot ...

Most late payment problems are not caused by bad customers. They are caused by payment terms that were never properly set in the first place: terms buried in small print, due dates left vague, and invoices that arrive weeks after the work is done. Here is how to build terms that get you paid on time. Put your terms on the quote, not just in the small print Your payment terms should appear on every quote or proposal, in the engagement letter, and again on the invoice. If a customer only discovers your terms when the invoice lands, you have lost your leverage. State the payment period clearly, the due date for each invoice, and what happens if payment is late. This is not about being aggressive. Professional buyers expect clear terms, and many will simply pay to whatever terms you set. Make the terms easy to find and easy to read. If you send a formal contract or terms of business, ask the customer to confirm acceptance in writing before work starts. That confirmation is your evidence...

Ageing debtors: the weekly 20-minute chase routine Cash flow problems in small businesses are rarely caused by a lack of profit. They are caused by profit sitting in other people's bank accounts. The invoice was sent, the work was done, and the money arrives six weeks late because nobody chased it. The cure is not a harder personality. It is a routine: twenty minutes, every Friday, same time, no exceptions. Why Friday, and why twenty minutes Friday works because it stops invoices festering over the weekend and because finance departments process payments early in the following week. Twenty minutes works because it is short enough to actually happen. An hour-long monthly credit-control session gets postponed. A twenty-minute Friday habit survives. Put it in the calendar as a recurring appointment and treat it like a client meeting: it does not move. Minutes one to five: read the aged debtor report Open your aged debtor report, sorted by how overdue each invoice is. This one rep...

  Profit is an opinion; cash is a fact. Businesses rarely fail because the annual accounts looked bad. They fail because the bank balance hit zero on a Tuesday and payroll was due on Friday. The 13-week cash flow forecast is the tool that stops that happening. It is simpler than it sounds, and you can build your first one in an afternoon. Why 13 Weeks Thirteen weeks is roughly a quarter: long enough to see trouble coming, short enough that the numbers are mostly known rather than guessed. It covers the next payroll cycles, the next VAT quarter-end, the next corporation tax instalment. Anything further out belongs in a budget; the 13-week forecast is about survival and timing. Step 1: Start With the Opening Balance Take today's actual bank balance across all business accounts. Not the book balance, the bank balance. Reconcile first so you are starting from truth, not hope. Step 2: List Every Known Outflow by Week Go through the next 13 weeks and place every committed payment i...

Asking customers for a deposit before you start work is one of the smartest cash flow moves a small business can make. It funds your costs, filters out unserious buyers, and protects you if a project goes sideways. But deposits are borrowed money, not earned money, and businesses that treat them as income learn that lesson the hard way. Here is how to use upfront payments wisely. Why deposits work so well A deposit aligns incentives. The customer has skin in the game, so they engage properly, provide information on time, and take the project seriously. You have working capital to cover materials, subcontractors, or staff time without dipping into reserves. Deposits also act as a quiet credit check. A customer who cannot or will not pay a 30% deposit upfront is telling you something about their cash position or their commitment. It is far better to learn that before you start work than after you have spent three weeks on it. The right deposit level depends on your industry and your...

Profit is an opinion; cash is a fact. The businesses that survive tight periods are rarely the most profitable on paper; they are the ones that knew, week by week, what was coming in and going out. The 13-week cash flow forecast is the simplest tool that gives you that visibility. Why 13 weeks Thirteen weeks is one quarter: long enough to see the real pinch points (the VAT quarter, the payroll months, the big supplier payments) and short enough that the numbers are still based on known invoices and realistic expectations rather than guesses. The template: three sections Opening cash: the actual bank balance today, across all accounts, reconciled, not estimated. Cash in, week by week: every expected receipt, dated by when the money actually arrives, not when the invoice was raised. Cash out, week by week: payroll dates, supplier payment runs, VAT and tax deadlines, rent, loan repayments, and the regular overheads. The closing balance each week becomes the next week's opening bal...