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Tip for forecast customer payment terms

Cash flow is the life-blood of any business and you can use your cash flow forecasts to trial out various options to improve your businesses cash flow. We suggest that you put in all your data relating to the business, included your sales, cost of sales and overhead expenditure before you begin to look at ways to improve cash flow.

Once the data has been entered we suggest you firstly enter the customer payment terms as they are at present and see what this shows in your cash flows. Once you have this data entered, save this as your cash-flow version one based on actual customer payment terms. You can then begin to play with the options you have in Cash Forecaster, which are extremely flexible. You can for example, enter anything from Zero to 100% of sales as cash through to Zero to 100% of sales received within 120-days.

There is a management belief that if you wait for more than 90-days to receive monies from your customers you have lost the profits associated with those sales. If for example, your business receives say 50% of customer debtors after 90-days with the rest somewhere between cash and 60-days - you could try adjusting the percentage of monies received after 90-days to within 60-days and see the impact on your cash-flow.

If might well be that you are presently running on a huge overdraft and that by changing how you receive customer balances this will begin to reduce your overdraft facility and therefore the bank interest cost associated with it. Having the use of cash flow forecasts will help you to understand the relationship between debtors and your bank balance. However, once you have prepared the forecasts and managed to trial out various scenarios you will then need to put this into action within your business and work out ways to encourage your customers to pay you earlier than they do right now.

This you can do using either the 'Stick' or the 'Carrot' or both. The 'Stick' would mean having penalties for late payment and the 'Carrot' having discounts for paying early. Of course the other option to you is to Factor or Invoice Discount your customer invoices, which is an option built into Cash Forecaster Vision, Pro and Pro Plus. You will be amazed at how Factoring can impact on your cash flows, especially if you presently have slow-paying customers.

Tip of delaying supplier payments

If you want to look at ways of improving cash flow for your business - one way is to delay paying your suppliers by say 30-days. Once you have entered your data and your existing supplier payment terms, why not try out setting your main supplier terms to a longer period than you already have and see what effect this has on your business cashflow. To put this into practice you will need to agree these terms with your suppliers to avoid any unnecessary fall-out or payment defaults with your suppliers, and more importantly any disruption to the delivery of your supplies.

Factoring and Invoice Discounting

Your business might already Factor or Invoice Discount its sales invoices which would mean that your when you prepare your cashflows they would need to reflect this. Alternatively, your business might be considering the introduction of Factoring or Invoice Discounting and would like to see the impact of this on future cashflows of the business. Cash Forecaster* has an extremely useful feature that allows you to select whether the business Factors or Invoice Discounts invoices and includes the following features:

- Percent of turnover factorable.

- Percent of sales advanced.

- The factoring charge or service charge.

- The interest charged on factoring advances.

- You can select the month in which factoring starts for companies looking to commence this type of invoice financing.

- You can select the month in which factoring ends for businesses that already have invoice finance and are looking to end factoring.

Once you have selected the correct controls and the forecast data has been entered Cash Forecaster does the rest. You would then be able to try out various scenarios with your cash flow forecasts.

* Factoring and Invoice Discounting is only available on the Vision, Pro and Pro Plus versions of Cash Forecaster - see our Compare Versions.

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